Buy IPCA Labs – Confidence Building Up: HDFC Sec

IPCA reiterated its guidance of resolving the Ratlam plant issues in next six months. We believe there is a strong possibility of IPCA resuming supplies sooner than six months given that the remedial measures (automations at plant) required for resolution were already underway before inspection. Moreover, IPCA is also confident of (1) not losing substantial market share in its key products (Atelnolol, Furosemide, Chroloquine and Hydrochlorothiazide) (2) recouping lost market share in few months (6-8 months) post re-launch. Hence we believe IPCA’s US revenues may not be impacted to the extent we assumed.

Factoring the possibility of earlier than expected resolution of Ratlam API plant, we value IPCA at 17x (earlier 14x). We upgrade IPCA to BUY (earlier NEUTRAL) with a TP of Rs 850 (earlier Rs 709) at 17x FY16E EPS of Rs 50.0.

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