IPCA Laboratories Limited

Ipca Labs reported a strong Q3 FY25 with significant margin improvement. Standalone EBITDA margin increased by 5.73% to 24.25% from 18.52% in Q3 FY24. On a consolidated basis, EBITDA margin expanded by 3.77% to 19.87% from 16.1% in Q3 FY24. For the nine months of FY25, standalone EBITDA margin was 23.14% (up 3.59% YoY) and consolidated EBITDA margin was 19.18% (up 1.84% YoY). This improvement was primarily driven by a favorable product mix and a 5% reduction in material costs against a 10% turnover growth.

The domestic formulation business delivered a robust 13% growth for the quarter, significantly outpacing the overall pharma market growth of 7.4%. Ipca's growth in the acute segment was 8.7% against a market growth of 6%, and in the chronic segment, it grew by 17.1% compared to IPM's 9.7%. The API business also contributed positively with a 12% growth for the quarter. Overall formulation business grew by 6% for the quarter. The company's pain portfolio grew by 14% for the first nine months of the current year.

Unichem's EBITDA margin has significantly improved to approximately 12% from around 5% last year, largely due to operational efficiencies and buying synergies post-acquisition. While Ipca has shipped about 4 products to the US market through Unichem and has 7-8 products in the pipeline, the financial impact on overall consolidated numbers has been minimal so far. The company expects to see 15-17% growth in the UK market next financial year and double-digit growth in Europe. Full capacity utilization at Unichem facilities is anticipated within 4-5 years.

On a standalone basis, Ipca Labs has a gross debt of approximately INR 900 crores and cash of INR 600 crores, resulting in a net debt of INR 300 crores. Management expects the standalone net debt to become nil in the next financial year due to debt repayment and cash accumulation. Unichem has minimal borrowings, estimated at around $12-13 million, with an overall consolidated debt of approximately $30 million.

Ipca is focusing on new growth areas by leveraging its leadership in pain management and orthopedics. A new division, 'Flexicare,' has been launched with 150 people added and another 200 planned, targeting breakeven next year. The company plans to add another division in cardiology with 300 people and one in cosmetic dermatology next financial year. R&D spend is projected to increase to 4% of revenue from the current 3-3.25%, supporting a target of 5-6 ANDA filings per year for Ipca.

The company faces challenges in its generic business, particularly in South Africa, where lost tender orders led to an INR 80 crores decline. The institutional antimalarial business, with INR 40 crores linked to US aid, faces uncertainty due to recent US aid cuts. Furthermore, the INR 75-80 crores business in Iran has ceased due to payment issues. Capacity utilization at the Dewas plant remains low at 35-40% due to pending regulatory approvals. Despite these, management has revised its FY25 standalone EBITDA margin guidance to 23-24% (from 21%) and consolidated EBITDA margin to 19.18-19.5% (from 18%).