IPCA labs

Stock Opportunities Untested - but worth a good look
46

Calmed the nerves a tad

but still there was no official clarification plus a number of bulk deals and insider sales (albeit smaller qty) during last few days had pointed to some trouble. Lupin is not out of the woods yet. This is how everything began for Aurobindo, Cadilla, Ranbaxy, Wocky and even IPCA

http://www.moneycontrol.com/news/business/lupin-says-fda-raises-concerns-over-pithampur-plant_1311019.html?utm_source=IW_DATA_stockpage Link: http://www.moneycontrol.com/news/business/lupin-says-fda-raises-concerns-over-pithampur-plant_1311019.html?utm_source=IW_DATA_stockpage

47

IPCA picks 19% in Krebs and hiking it to 30% http://www.vccircle.com/news/pharmaceuticals/2015/02/13/ipca-labs-picks-19-stake-krebs-biochem-hiking-it-30-makes-open-offer

48

HDFC Securities has come out with report on IPCA.

http://www.hdfcsec.com/Share-Market-Research/Research-Details/StockReports/3011835

I guess market overly reacted on the negatives mentioned in page 13.

49

FDA bans imports from 2 more plants.

http://www.thehindubusinessline.com/markets/stock-markets/ipca-slumps-after-fda-bans-imports-from-2-more-plants/article7031143.ece?utm_source=RSS_Feed&utm_medium=RSS&utm_campaign=RSS_Syndication

Anyone know how much revenue impact because of this?

50

Got Answer from the below link:

It would be around 218 Crs.

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Important updates from IPCA concall regarding impact of USFDA import alerts â

With latest import alerts, all facilities (Ratlam, pithampur&silvassa) catering to US market are facing import alert from USFDA for violation of GMP. However,USFDA has exempted two products (hydrocholoquine sulphate and propranolol hydrochloride)from silvassa formulation facility. this is in addition to 4 products FDA had exempted from Ratlam API facility. As per the management IPCA has already begun shipment to US, however, there was no updates on market dynamics. Also, management expects all facilities to be USFDA GMP compliant before Dec 2015 - company has installed hardwares required for automation of facility and softwares updates are in progress.

In another major development, EU/ WHO/ TGA Aussie audit at Ratlam has concluded and facility received 9 observations (2 major and 7 minor). Major observations are regarding Quality Management and Labortaory practices.Management is expected to reply to this observations in next 4 weeks and post which management expect the facility to receive clearance within 2 months. Also, post this audit, IPCA has stopped institutional sales to Africa until facility receive clearance â so rev from institutional sales will be NIL in Q4 and maybe for extended period if IPCA doesnât receive WHO clearance.

Athal Formulation facility which account for 90% of euro revenue is due for Audit in current year so EU/WHO inspection can be expected any time. Also, Krebs, Alpha labs facilities are currently not USFDA complaint hence it may take more time to get USFDA approvals.

In all, i guess more pain can be expected in near term especially if companyreceiveimport alert from any other major regulator.

52

This is best analysis about nature of problem faced by IPCA. It seems management tried to hide the required info

53

IPCA to hold AGM on 30th July 2015

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hearing the concall it seems its steadily coming back. WHO inspection over and inspection was without any hiccups. even with the bad results it seems ipca is coming back on track. the concall is available on researchbyte

disc- invested

55

Few salient points from Concall notes for IPCA for Q1 FY 16

  • Generic- Generic: Europe showed 15-18% growth; Australia/Newzeland: 90% growth; South Africa: showed 30% growth while US business declined by 85%.
  • Generic-Generic: EU/UK is likely to grow at 18% and AU/NZ is likely to grow at 40-50% in this FY
  • Branded Generic: Significant de growth due to multiple challenges including currency. Business declined from 110 Crores to 55 Crores. Apart from currency, the west African distributor de-stocked for a while due to challenging market, however things are normalized now. this business is going to be flat this year in constant currency terms and 18% kind of growthis possible in FY17.
  • Institutional business: WHO has cleared the sites it inspected. Company is awaiting certificate from WHO post which it will approach global fund for re-starting the supply. Supply is likely to be normalized from H2. Quarterly run-rate of 125-130 Crore is expected.; Company’s quota has not been reallocated to any other player hence company is hopeful of making up for the lost supply and hence company has lined up the supply chain to meet with the increased volume, if required
  • Domestic business: significant de-growth in anti-malaria business and GI business. All other businesses grew. Strong traction in pain management, Urology and neurology. Expect 12% growth in domestic business despite significant degrowth in anti-malarial business. Company launches 5-6 products every year and believes in building brands rather than launching many products
  • In addition to Silvasa facility even Ratlam facility has been allowed to manufacture exempted product by USFDA. Supply has already started and realizations will be partly seen in Q2 however major impact will be seen only in Q3 and onwards. The prices are much higher than before USFDA issue and hence the profit share will be much higher than before for the company. Current market size of exempted product is at USD 150 million at wholesale level. It needs to be seen what market share the company will be able to get back
  • Current quarter numbers included one time charge of around 30 Crore arising out of failure to supply claims from some retail chains in US. However, company has held discussions with them and one of the chain has reversed these charges and other may also follow. However, to be prudent, company has provided for the claims in P&L
  • Excluding one time charges, company has achieved around 14-15% EBIDTA margin in Q1. For H2, things are going to be normalized for branded generic, institutional and US exempted product business. Hence margins are going to improve further. Company maintains its guidance of 7-8% topline growth with 18% margins for FY16.
  • Company is collecting stability data for Artensuate injection and is likely to file with WHO in current fiscal. Only the originator has approval for injectibles
  • Company is evaluating various options with its 505 (b) 2 compound - did not elaborate much
  • Company has taken up large number of product for development for European market- around 10-12 new products are being developed for these markets
9 Likes
56

has any one listened to conf call post 3Q FY 16 results?

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IPCA hit with a FDA warning again. Warning issues for newly constructed plant in Piparia as well as for Ratlam and Indore.

Disc : Invested

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This is warning letter for a old inspection which happened last year , it’s already under ban.

The problems and situation seems identical to what happened at wockhardt. Personally I feel FDA issues at organisation level take longer to fix than one offs at a single plant . Resolution could be still 2 years away , with this view I had exited the stock with a minor loss . It doesn’t make sense to stay invested in “troubled” assets in present market situation when companies with a consistent regulatory track record like torrent, strides, Indoco are available at good valuation.

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I completely agree with @anon34631667 here. I had invested in this stock around one year back when first news of FDA troubles came in. I also sold with some loss once I came to know that they have data integrity issues. Looking at what happened at Wockhardt, it could be easily 2+ more years for IPCA to come out and price may remain in the similar price range. That is too much of opportunity cost, more so when many good companies are available at decent valuations…

2 Likes
60

Fresh troubles for IPCA…

The Global Fund, Geneva, Switzerland vide their letter dated April 04, 2016 (which was transmitted to us vide their e-mail dated April 06, 2016), have informed the Company that in the light of the warning letter issued to the Company by the United States Federal Drug Regulatory Authority (US FDA) on January 29, 2016, they have re-assessed the situation and following a risk consideration exercise, will not allocate any volume of Artemisinin based Combination Therapy (ACTs) to the Company and that they will only source ACTs from other pre-qualified suppliers that have no outstanding issues with the regulators

See more at: http://www.indiainfoline.com/article/news-top-story/ipca-lab-says-geneva-based-fund-stops-buying-its-anti-malaria-drugs-116040800003_1.html#sthash.aP2ydOlW.dpuf

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Do Value investors find value in Ipca labs at theses prices?

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Started adding small quantity of ipca in a staggered manner. ( further downside possible )

i like the past performance and management. So i am betting on that.

63

Finally some good news on IPCA labs, MFs are picking up

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What makes this stock buyable now? Agreed it has fallen a lot, but then it looks like the resolution on FDA issues is beyond FY18. The WHO sales they lost has gone to someone else and its unlikely that lost sales may come back to them. They also enjoyed super normal margins in the past because the raw material prices for the malarial drugs they make (artemesinin) prices had almost halved and they were yet to pass on the benefits. That temporary arbitrage is most likely gone. The domestic business also has tilt towards acute therapies which is not really favourable. So the normalized margins going forward can be much lower than the historical margins. At the current market cap, to be able to buy this stock at a PE of 15x (which is what I think is a minimum qualifier for a fat pitch), we need an earnings of 380cr - which seems quite a distance away

Would love to hear alternative views.

4 Likes
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This is not a buy/sell forum. Please refrain from asking such questions.