Tue. Oct 20th, 2020

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IPCA’s Q1 show decent, but stock prices are riding on a wave of over-optimism

2 min read

The growth in the domestic pharma market is rubbing off on IPCA Laboratories Ltd. Its stock is up about 86% since January this year as demand for hydroxychloroquine, considered among covid-19 drugs, jumped this year. Comparatively, the Nifty Pharma index is up 48%.

But even while its latest results have impressed the Street, the stock’s recent run-up should make investors wary. After a sharp run-up, the stock fell about 1.6% on Tuesday.

Of course, IPCA’s overall revenue growth is quite decent at 41% year-on-year (y-o-y). Its formulations business clocked a growth of 37%, which is quite good. The domestic market’s growth of about 8% is steady considering that there were supply disruptions due to covid-19.

IPCA’s formulation export growth was pretty much ahead of the Street’s expectations, though. Both generic and branded formulation exports have been impressive. Besides, institutional sales to governments have also shown a sharp growth this quarter. This business could slip in the coming quarters after institutions stockpile on drugs, say analysts.

The domestic active pharma business also got a bump up due to stock-buying by pharma companies. As a result, the active pharma ingredient segment posted a decent growth of about 72% y-o-y in the business.

Both the combination of sharp growth in revenues and cost-savings that is being seen in the pharma sector has proved to be a tonic for the company. Ebitda margins expanded sharply to 38.4% in Q1FY21 compared to 19% in the year-ago quarter. Ebitda is earnings before interest, tax, depreciation and amortization.

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