IPCA Labs: Positive news on FDA will drive upside

IPCA Laboratories Ltd. | Work-in-progress to resolve regulatory issues; maintain HOLD with PT Under Review | We recently met the management of Ipca Lab (IPCA IN) to get an update with respect to various regulatory inspections and subsequent impact on business going forward. Also, we tried to understand the synergy between Krebs Biochemicals and Industries (KBC IN) and IPCA post acquiring considerable stake in KBC. The US business is majorly affected due to import alert by USFDA at its API facility at Ratlam. The regulatory hurdle had affected Institutional Anti-malaria business as well. The branded business in Russia/CIS countries was affected due to currency headwinds. IPCA is in the process of taking corrective actions to resolve USFDA issues. The management expects to complete the corrective actions by end of March 2015. There has been sharp run up of 20% in stock price in month of March 2015 till date. However, we would wait for more clarity on outcome of steps taken for resolution of USFDA issues, to incorporate respective changes in financials and hence in price target. Hence, we put our price target under review. However, we maintain HOLD rating on the stock. We believe any positive news on USFDA issues resolution would be a re-rating to the stock which is trading at discount to its peers. At CMP of Rs777, the stock is trading at the stock is trading at 20.8x FY16E EPS of Rs37.4 and 18.2x FY17E EPS of Rs42.7. (IndiaNivesh)