Ipca Laboratories earnings outlook supported by domestic formulations and margin expansion

Investment View and Valuation

Prabhudas Lilladher retained its Buy rating on Ipca Laboratories and its target price of Rs 1,800 per share in its June 2, 2026 Q4 FY26 result update. The positive view is supported by a recovery in the API business, improving margins excluding Unichem and sustained growth in domestic formulations.

Domestic formulations and branded generics together contribute 46 per cent of revenue and approximately 70 per cent of EBITDA, and these businesses have continued to outperform. Prabhudas Lilladher values Ipca Laboratories at 28x FY28E earnings per share. At the report CMP of Rs 1,490, the stock traded at 14.5x FY28E EV/EBITDA and 23x FY28E P/E after adjusting for the Unichem stake.

Q4 FY26 Financial Performance

Ipca Laboratories reported consolidated Q4 FY26 revenue of Rs 2,388.5 crore, up 6.3 per cent year-on-year and 2.8 per cent above Prabhudas Lilladher’s estimate. Revenue excluding Unichem grew 9 per cent year-on-year. Domestic formulations increased 12 per cent, while export formulations rose 16 per cent to Rs 605.3 crore, exceeding the broker’s estimate.

Within the formulations business, branded revenue grew 14 per cent and generic revenue rose 38 per cent, while institutional business declined 33 per cent. API revenue was broadly flat at Rs 340 crore, with domestic API revenue up 15 per cent and export API revenue down 4 per cent.

Profitability and Margin Trends

Q4 FY26 EBITDA, adjusted for forex, was Rs 490.2 crore, up 19.6 per cent year-on-year and 7 per cent above the broker’s estimate of Rs 458 crore. EBITDA margin expanded 230 basis points year-on-year to 20.5 per cent. Consolidated gross margin improved 257 basis points year-on-year but declined 146 basis points sequentially to 71 per cent.

The company reported a forex loss of Rs 6.3 crore in other expenses. Unichem’s margin was 8.3 per cent, down 600 basis points year-on-year and flat sequentially. Excluding Unichem, EBITDA increased 36 per cent year-on-year, with gross margin of 77 per cent and operating margin of 24 per cent. The report states that Q4 profit after tax was Rs 290 crore and adjusted EPS was Rs 11.2 per share.

FY27E Growth and Margin Outlook

Management guided for 12–13 per cent revenue growth and 150 basis points of EBITDA-margin expansion in FY27E, implying an EBITDA margin of 22 per cent. Domestic branded growth is expected to be 12 per cent, including 1–2 per cent from new launches. The company plans 18–20 launches or line extensions across divisions.

• Key domestic growth drivers are Pain, Cardiac and Dermatology.
• Price increases could be modestly higher because of raw-material inflation.
• Export growth is expected to be supported by the CIS and Franco-African markets.
• Europe, Australia and New Zealand supported generic performance.
• Export-market growth guidance is 12–13 per cent.

Unichem, US and API Initiatives

For Unichem, management is evaluating US institutional opportunities and has 4–5 products under technology transfer to third-party manufacturers. The Ireland facility has been shut and production has been shifted to India, which management expects will provide annual closure benefits of Rs 40–50 crore.

Ipca currently markets eight products in the US and expects 6–8 commercialisations in FY27E. Its new US formulations facility is targeted for commissioning in Q4 FY27E, with meaningful revenue contribution expected from FY28E. The US API facility is seeing improved order inflow.

API margins improved in FY26, and selling-price revisions are expected to pass through most of the 10–12 per cent increase in input costs.

Broker Estimate Revisions

Prabhudas Lilladher raised its FY27E and FY28E sales estimates by 2.3 per cent and 2.1 per cent, respectively. EBITDA estimates were increased by 4.7 per cent and 4.4 per cent, while EPS estimates were raised by 2.3 per cent and 3.4 per cent.

Key Watch Items

• Weak demand at Onyx Scientific.
• Losses at the UK formulations subsidiary because of weak pricing.
• Elevated freight costs following an approximately 25 per cent increase in Q4 FY26.
• Pressure on institutional business from procurement-agency funding constraints.

Krebs Bio-Nellore became EBITDA positive, while R&D spending was 3.7 per cent of FY26 revenue.