Company Research
IPCA Laboratories: Strong re-rating candidate – BUY
CMP (Rs) 598, 12-mts Target (Rs) 760, Upside 27.0%
IPCA Laboratories is on the comeback path after the lows in margin and PAT touched in FY16. Reeling under triple import alerts, an unparalleled event in its history, the company should gradually regain momentum in ex-US operations that were impacted by currency depreciation and withdrawal of global fund business last fiscal. Company has been a cost leader with margins in excess of 20% in the three year run up to alerts; indeed FY14 margin of ~25% is comparable to larger peers despite having a lower share of US revenues, a traditionally high margin business. Management remains confident of growth in international branded operations while generics would clock 13% Cagr over FY16-19E without Global Fund and US sales. In the domestic arena, FDC ban and NLEM impact would be offset by price hikes in FY17E with estimated 13% Cagr over next 3 years. We factor in average ~200bps margin improvement in FY18/19E each, which translates into ~50% compounded PAT growth over FY16-19E. Stock is attractively priced at 16x FY19E EPS and we recommend BUY.
Macro Economics
Eight core Industries Production – Aug'16
India's core sector growth during August grew 3.2%, helped by momentum in steel and fertilisers, however activity in coal and electricity generation proved to be a disappointment. The monthly reading for the eight infrastructure sectors does not exhibit too much vitality, however, one can derive optimism from the cumulative reading for the first five months of this fiscal year which shows growth of 4.5%, much higher than the number of 2.4% during the same period of last fiscal year. Steel output grew 17%, recovering sharply from the contraction of 0.5% during the prior month. The rebound in the number can also be attributed to relatively low base during August last year. Similarly, Fertilisers output grew 5.7%, recuperating from the decline of 4.3% during July this year. Cement sector grew 3.1%, as August monsoons turned out to below average. Output of refinery products grew 3.5%, however, the growth reading decelerated, when compared with last six month average of 9.2%. On the negative side, Coal output contracted by 9.2%, a complete contrast when compared with last six months average of 4.5%.
Sector Update
Auto volume update: September 2016
² Maruti surprises yet again with highest ever volumes, clocking 31.1% yoy growth
² Ashok Leyland M&HCV volumes disappoint due to high base, but LCVs stay strong
² Eicher reports industry beating performance in CVs, Royal Enfield sees 30% growth
² M&M UVS disappoint with just 2.6% yoy growth, strong show in <3.5ton LCVs
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