Ipca Labs (IPCA) Q1 EBITDA of Rs3.9bn was in line with our estimate. Management guidance of 9% revenue growth (excluding Unichem) was below our estimate while increase margin guidance by 50-110bps. Our FY25E and FY26E EPS broadly stands unchanged. Domestic formulation business continues to outperform and grow at healthy levels. However, recovery in API segment along with resumption of US sales is likely to be gradual. At CMP, the stock is trading at 32.2x PE and 16.2x EV/EBTIDA on FY26E. We maintain our ‘Reduce’ with revised TP of Rs1,250/share, valuing at 30x FY26E P/E.

Revenue miss; Healthy domestic sales while weak exports: IPCA’s revenues came in at Rs 21bn, up 32% YoY below our est. Adjusted for Unichem; sales was up 4% YoY. Domestic formulations remained healthy at 12% YoY, in line with our est. Export formulation remained weak with flat YoY to Rs 3.96bn against our est of Rs 4.5bn. Branded business declined by 1% YoY while generics was down 19% YoY. Institutional business witnessed growth of 19% YoY. API revenues were down 2% YoY to Rs 2.9bn, below our est. Export API was down by 10% YoY whereas domestic API was up 19% YoY. Revenues from subsidiaries including Unichem came in line at Rs5.3bn.

Higher GMs; Ex-Unichem OPM at 21%: Consolidated gross margins stood at 69.2%, up 170bps YoY and 300bps QoQ sharply above our est. There was a forex gain of Rs 52mn booked under other expenses. Adj for forex; other expenses were flat QoQ and 36% YoY. EBITDA adj for forex gain came in at Rs 3.9bn up 32% YoY in line with our est. OPM came in at 18.5%, flat YoY. Unichem margins stood at 9.7%. Adj for Unichem EBITDA came in at 3.44bn with OPM at 21%. PAT came in at Rs1.92bn; up 16% YoY.

Key Concall takeaways: (1) Domestic market: The acute portfolio achieved 12% growth while Chronic portfolio witnessed 20% increase. Current MR strength at 6500 POCM improved to Rs0.45m vs 0.421mn last year despite 500 MR addition. 2) Unichem – Air/Sea freight ratio has changed to 17:83 thereby driving Unichem margins GMs have improved by better product mix, procurement synergies and operating efficiencies. Expected to improve by 50-100bps for FY25. (3) US – No plans to file any new products in FY25. Targets to launch 5-6 products in FY25 and another 5-6 in FY26 (4) Branded formulation business: Exports encountered significant challenges with shipping delays and supply chain issues, leading to a decline in business. However, the Australia and New Zealand markets performed well during the quarter. (5) API: Business continues to face some challenges in Q1FY25. Decline due to price erosion and also faced logistics challenges. (6) Other: Focus remains on commercializing couple of intermediate products in FY25. Targets 3-4 product launches for the remaining year. Export margins remained strong except for UK markets. Sea freights have surged by 3x. Price erosion has stabilized at low single digit levels. (7) Guidance: Lowered ex Unichem revenues guidance to grow by 9% YoY in FY25. Export revenues should pick up in coming quarters. Upgraded margin guidance by 50-100bps for FY25.