Ipca Laboratories export momentum and API recovery underpin margin growth outlook

Investment View and Key Drivers

In its November 6, 2026 Q2 FY27 result update on Ipca Laboratories, Prabhudas Lilladher retained its BUY recommendation and raised its target price to Rs 2,200 per share from Rs 2,000.

The broker identified the key drivers as recovery in the API business, higher margins excluding Unichem and continued healthy growth in domestic formulations. Domestic formulations and branded generics together contribute 46 per cent of revenue and about 70 per cent of EBITDA, and the broker expects these businesses to continue outperforming.

Q2 FY27 Financial Performance

Ipca Laboratories reported Q2 FY27 consolidated revenue of Rs 2,910 crore, up 14 per cent YoY and above Prabhudas Lilladher's estimate of Rs 2,830 crore. Revenue excluding Unichem grew 15 per cent YoY.

Domestic formulations increased 14 per cent YoY, while export formulations rose 32.5 per cent YoY to Rs 650 crore and exceeded the broker's estimate. Within exports, branded business grew 19 per cent YoY, generic business grew 36 per cent YoY and institutional business increased 45 per cent YoY to Rs 150 crore.

API revenue grew 6 per cent YoY to Rs 430 crore, as domestic API rose 56 per cent YoY while export API declined 7 per cent YoY. Subsidiary revenue was Rs 650 crore.

Margin Performance

Other expenses included a Rs 5.2 crore foreign-exchange gain. After adjusting for this gain, EBITDA was Rs 668 crore and adjusted PAT was Rs 390 crore, with EPS of Rs 15.5.

Unichem's EBITDA margin was 11.6 per cent, up 20 basis points YoY and 50 basis points QoQ. Excluding Unichem, Ipca Laboratories delivered gross margin of 76.1 per cent and operating margin of 26.4 per cent.

Management Guidance and Growth Outlook

Management retained FY27 revenue-growth guidance of 14 to 16 per cent and consolidated EBITDA-margin guidance of 22 to 23 per cent. It expects annual margin improvement of 100 to 125 basis points.

• Pain-segment growth is expected to remain supported by volume and price growth.
• The rheumatoid arthritis and osteoarthritis portfolio is forecast to grow 14 to 15 per cent over the next three to four years.
• Export-formulation growth guidance remains at 15 to 16 per cent for FY27.
• The UK subsidiary returned to profitability on improved pricing and market shortages.
• Brazil became profitable in Q2 FY27.

Operating Areas Requiring Improvement

• Unichem profitability: Higher freight costs affected profitability, with air shipments rising to 25 per cent from 5 to 6 per cent. However, Unichem's EBITDA-margin guidance remains at 11 to 13 per cent.
• Institutional business: Growth is not expected to sustain at the current level and may moderate in the following year.
• Acute domestic business: Growth was affected by declining anti-malarial sales, modest anti-bacterial growth and weak cough-and-cold demand.
• Pisgah: The business remains loss-making despite a healthy API order position, with improvement expected from the next financial year.

Estimates and Valuation

Prabhudas Lilladher increased its FY28E and FY29E EPS estimates by around 2 to 5 per cent, reflecting 15 per cent FY27 revenue growth.

The target price of Rs 2,200 is based on 30 times September 2028E P/E, adjusted for the Unichem stake. At the report CMP, the broker calculated valuation at 17 times September 2028E EV/EBITDA and 26.5 times P/E adjusted for the Unichem stake.