Ipca Labs slips 5%, hits 52-week low on weak December quarter results

In Q3, Ipca's operating profit margin was lowest since FY19, impacted by lower gross margins, and continued higher overheads.

Shares of Ipca Laboratories hit a 52-week low of Rs 818.25 as they slipped 5 per cent on the BSE in Friday's intra-day trade as brokerages reduced their FY24/FY25E earnings per share (EPS) estimates for the company post its weak December quarter results.

The company's consolidated Ebitda (earnings before interest, taxes, depreciation, and amortization) margin contracted 486 bps to 16.67 per cent in December quarter (Q3FY23). On sequential basis, Ebitda margins were down 200bps, impacted by lower gross margins and negative operating leverage.

The stock of the pharmaceutical company has fallen below its previous low of Rs 823.95, touched on February 14. At 10:46 am, it was down 4.6 per cent at Rs 823.60, as compared to 0.21 per cent decline in the S&P BSE Sensex.

In Q3FY23, the company's consolidated net profit almost halved to Rs 120.27 crore from Rs 218.17 crore in Q3FY22. Net total income grew 9 per cent year-on-year to Rs 1,458 crore.

Ipca is vertically integrated and produces finished dosage forms and active pharmaceutical ingredients. Exports account for 44 per cent of the company's income.

Analysts at Prabhudas Lilladher reduced their FY24/FY25E EPS estimates by 21 per cent/15 per cent, and downgraded the stock to ‘Hold’ from Accumulate with revised target price of Rs 865 (Rs 950 earlier), valuing at 23x on FY25E EPS.

"Our FY24/FY25E factors margin recovery to 19 per cent/ 21 per cent. Ipca Labs (IPCA) Q3 OPM of 15 per cent was lowest since FY19, impacted by lower GMs and continued higher overheads. We expect margins to recover from Q1FY24 as revenues scale-up with NLEM benefits, along with easing of certain raw material prices," the brokerage firm said in result update.

Domestic business (45 per cent of total sales), remained strong and will continue to outperform IPM. Further, export business is on a gradual recovery mode with UK and export API business expected to normalize. At CMP, the stock is trading at 23x FY25E factoring in near term recovery, the brokerage firm said.

Analysts at Motilal Oswal Financial Services also cut their FY23/Fy24/FY25 EPS estimates by 20 per cent/14 per cent/14 per cent to factor in a moderation in generics exports, a gradual pick-up in API off-take and subsequent lower operating leverage, an adverse impact of lower pricing for products under NLEM in domestic formulation (DF), and a higher tax outgo.