Why do analysts see 40% potential upside for this pharma stock in 6 months?

The research analysts of Cholamandalam Securities Limited (CSL) said in a note that “IPCA Labs Ltd. is in a medium term down trend but in a short term it is consolidated in the range of 830 – 950. In short term stock was formed a descending wedge pattern which gives future bullish momentum. We expect stock will find support at 800 levels and start a short term uptrend which gives a breakout at 950 levels. In this view, we recommend to buy this stock at long term support levels at 800 with stop loss 730 and a target of 1150 – 1200. Long term support is seen at 800 levels and resistance is at 1200 levels.”

“We expect 33% earning CAGR over FY23-25, led by 17%/16%/11% sales CAGR in the India/API/exports (generics/branded) segment, respectively, along with 480bp EBITDA margin expansion. We remain positive on IPCA backed by superior execution leading to a) brand led growth in DF, b) product pipeline/cost minimization in API segment and gradual recovery in exports,” claimed the analysts.

Behind the fundamental rationale of IPCA, the analysts said “Domestic formulation (DF) is the key driver of its sales growth, fueled by market outperformance in pain/dermatology/urology and supported by higher MR base. Notwithstanding the near-term hiccups in API segment, IPCA is building levers to almost double its API exports by FY27E. The exports (branded/generics) formulation sales are likely to revive from FY24. The enhanced focus on the cosmetics aspects in dermatology would drive 25% YoY growth for IPCA v/s industry growth of 9-10% over the next 12-18 months. IPCA’s MR strength has been stable at ~4,000-4,600 since FY17, implying improved MR productivity with 13% sales CAGR over FY17-22. However, the company added ~1,200 MRs over 1HFY23 due to which its MR productivity ebbed a bit. Management though continues to focus on raising the productivity. Overall, IPCA is likely to exhibit 15% YoY sales growth in FY24. IPCA’s MR strength has been stable at ~4,000-4,600 since FY17, implying improved MR productivity with 13% sales CAGR over FY17-22. However, the company added ~1,200 MRs over 1HFY23 due to which its MR productivity ebbed a bit. Management though continues to focus on raising the productivity. Overall, IPCA is likely to exhibit 15% YoY sales growth in FY24.”

The shares of IPCA Laboratories closed on Friday at ₹856 apiece level, down by 0.27% from the previous close of ₹858.35 on the NSE. The stock recorded a total volume of 81,757 shares compared to the 20-Day average volume of 278,408 shares. The stock had touched a 52-week-high of ₹1,128.50 on (10-Jan-2022), and a 52-week-low of ₹831.05 on (13-Jun-2022).

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.