>IPCA LABORATORIES: 1QFY2011 Result Update | Pharmaceutical

Ipca Labs (Ipca) 1QFY2011 performance was below expectations impacted by subdued performance by the anti-malarial segment, and higher employee and promotional expenses. However, going forward, management expects recovery in the anti-malarial formulation segment and gradual increase in the productivity of the newly recruited sales force (1,000 MRs). We maintain Neutral on the stock owing to fair valuations.

Results disappoints on the operating front: Ipca reported net sales of Rs414.5cr (Rs357.8cr), which was in line with our estimates. On the domestic front, formulation sales grew 16.1% to Rs168.2cr (Rs144.9cr) driven by the CVS and NSAID segments, but was lower than estimated due to subdued performance by the anti-malarial segment. Exports surprised and offset the partial underperformance on the domestic front. The company clocked OPM of 16.3% (19.8%), which was below our estimates of 20.0% on account of higher employee and promotional expenses. Ipca reported net profit of Rs38.8cr (Rs49.7cr), down 21.9% impacted by lower OPM and forex losses. Excluding forex losses, recurring profit de-grew 4.1% to Rs41.8cr (Rs43.6cr).

Outlook and Valuation: We expect net sales to post 17.4% CAGR to Rs2,150cr and EPS to register 20.0% CAGR to Rs23.7 over FY2010-12E, driven by the US and domestic markets and the API segment. The stock is currently trading at fair valuations of 14.4x and 11.8x FY2011E and FY2012E earnings, respectively. We maintain Neutral on the stock.

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