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This is expected to increase to 77 per cent in FY1999. In FY1997, the companys formulation business grew 34.9 per cent while its bulk drug business declined 20.4 per cent. The companys future plans include introducing a range of new products in the branded formulation segment, bulk drugs for which will be outsourced. The new formulations will be based on Roxithromycin, Primaquine, Trimeta-zidine, Lisinopril, Alprazolam and Vitamin B complex with zinc bulk drugs.

As part of its strategy to strengthen its formulation sales, Ipca will expand its present 440-strong medical representative team in financial year 1998. About 125 of the 200 fresh recruits are likely to be assigned to the new cardiac care division to be operational by FY1998.

 

Market leader in anti-malarials: Ipca is the largest domestic manufacturer of chloroquine phosphate, an anti-malarial bulk drug. Its brand, Lariago, has a 43 per cent market share.

The company took over an Indore-based FDA-approved manufacturing facility for CQP from E Merck India Ltd in 1995. The antimalarial segment contributes 20 per cent to Ipcas total turnover. This segment, with a market size of Rs 650 crore, is expected to grow at 18 per cent per annum in FY1998.

Bachchan family to divest: The Bachchan family, Ipcas largest shareholder, has decided to divest its 36 per cent holding (4.5m shares) in the company.

They have already placed 8.5 lakh shares with Jardine Fleming and 2 lakh shares with an Indian investor at Rs 138 per share. They had placed 10 lakh shares with another investment company.

The other two promoters, Premchand Godha and M R Chandurkar, who together hold 36 per cent equity, are planning to purchase 18.75 lakh shares from Bachchan. This will increase their holding to 51 per cent. We do not expect the Bachchans exit to affect the companys performance because day-to-day management is controlled by Godha and Chandurkar. The funding source employed by Godha and Chandurkar to raise their equity stake need scrutiny.

Net profit to grow 24 per cent y-o-y over 1997-99: Over FY 1997-99, we expect turnover to grow at 24 per cent yoy.

The companys performance in the past was adversely affected by the high borrowings to part-finance the new project at Athal (Silvassa).

Valuation: Ipcas market capitalisation to gross sales ratio at 0.51x is low, as 67per cent of the turnover is derived from the formulation business. Other domestic pharmaceutical majors command a market capitalisation to gross sales ratio of more than 2x. Ipca has a strong brand name in its segment of domestic formulations market coupled with an extensive distribution network. While for exports, its manufacturing facilities are approved by the international agencies of various countries.

We believe that the dumping of CQP by China and the exit of the Bachchans from the company have already been factored into the price. At Rs 124, the stock trades at 5.9x and 1x CY 1999E earnings and NAV, respectively. At current market price, Ipcas stock is available cheaply and will outperform the market.

Inves Trust Research

A performer

We are raising our rating on Ipca Laboratories to Market Performer from out earlier Market Underperformer rating and also introducing our estimates for fiscal 1998 and fiscal 1999.

Our rating upgrade is based on a changed strategy at Ipca. Under the new strategy, Ipca plans to concentrate on domestic formulations and reduce the impact of price control regulations by expanding the product and therapeutic profile and push formulations exports through long-term vendor arrangements.

Though Ipca is relatively cheap vis-