Ipca Laboratories (Ipca), a market leader in anti-malarials and rheumatoid arthritis segment, has grown at steady pace in the past, posting a CAGR of 15.7% in net sales and a CAGR of 24.1% in net profit over FY2005-08 primarily driven by its domestic formulations segment. Going forward, we expect the next leg of growth for the company to come from the export segment as it leverages its API capabilities to create a sturdy business in the regulated and emerging formulations market.
We estimate Ipca’s net sales to post a CAGR of 17.7% and adjusted net profit to register CAGR of 40.1% over FY2009-11E. At Rs740, the stock is trading at 10.8x FY2010E and 8.7x FY2011E Earnings. We believe the stock is at attractive valuation compared to its historical trading band of 5-15x. We recommend Buy on the stock with a Target price of Rs 855.