Hi all,
I am a beginner level value investor and IPL is one of the first companies I have attempted to try and understand. Just wanted to share my understanding on it so far.
Couple of things that stand out for me are:
- Consistently better GMs vs competition (since last 4 years at least)
- Company’s aggressive capex plans over next 4-5 years
Gross Margins
Compared to some other similarly sized companies their GMs are considerably superior.
Management puts this down to – (i) Cost control through back ward integration and higher % of local raw material sourcing; (ii) Careful selection of which molecules to launch – target high GM, niche category.
(Note: Their GMs are not stable as they do not have much of pricing power, but are superior vs some others, so there’s likely something going on here)
Capex plans over next 4-5 years
They have done/are doing a cumulative of ~140 Cr. brownfield capex in FY22 & FY23. And plan to do 300-400 Cr. of greenfield Capex in next 3 to 4 years. All this has been and is planned to be funded through internal accruals, without raising any addnl. money. (Currently, it is virtually a debt free company)
Mgmt is confident of an asset turnover of over 2x. If this happens, there could be an additional ~800 to 900 Cr added to the top-line in the next 5 years (in the near term, for FY 24 mgmt. has indicated crossing 1100 Cr. – TTM is 864 Cr.)
There are of course many things that could go wrong – new molecules not selling well; margins do not sustain (mgmt. has already over-committed on margins earlier & then revised down); increasing working capital intensiveness (apparently due to need of stocking inventory of newer molecules) etc.
However, given that there has been a significant drop in valuations since IPO (Mcap/sales going down from around 6x to 3x), and their future plans – it does seem worth a good consideration.
(Discl: Not invested yet, but find myself likely to do so in the near future)
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