IPCA Laboratories and V-Guard Industries: Weekly Recommendations

The two stocks recommended by SMC Global Securities’ Research Team this week are IPCA Laboratories and V-Guard Industries. These two stocks have shown great potential with positive financial estimates for the next two financial years. So, let’s go through the details of the two stock recommendations for the period between December 23, 2024 and December 27, 2024.

IPCA Laboratories Limited

IPCA Laboratories share price was at ₹1,600 (as on December 20, 2024) and its target price is set at ₹1,918 with an upside potential of 20%.

IPCA Laboratories Limited: Investment Rationale

• • IPCA Laboratories is an Indian multinational pharmaceutical company. It produces theobromine, acetylthiophene, and p-bromotoluene as active pharmaceutical ingredients (APIs). IPCA also sells these APIs and their intermediates globally.
  • On the development front, it has developed and submitted 55 generic formulation dossiers for registration in Europe out of which 50 dossiers are registered. The Company has also obtained a Certificate of Suitability of 61 APIs from the European Directorate for Quality Medicines. It has started marketing generic formulations in the United Kingdom on its own label and this business is growing on expected lines with several more generic formulations lined up for commercialization.

• The company is witnessing strong demand traction in the API segment and is implementing de-bottlenecking to ease capacity constraints. Over the next year, Dewas’s expansion would come on stream and drive the topline.
• The company has set up a new API plant at its Ratlam facility with a 50MT capacity, which is on the verge of commercialization. The expected improvement in the formulation business, increased opportunities in the API space, and healthy traction from the institutional segment indicate strong earnings potential for the company.
• The consolidated EBITDA margins for Q2FY25 is 19.10% as against 17.64% for Q2FY24, an improvement of around 146 bps supported by an improvement in product mix and lower input costs, and lower manufacturing and other overhead. Consolidated EBITDA margins are better than the guidelines given before FY25.

• The management of the company has updated the guidance related to consolidated EBITDA to 21% for FY ’25. The company is also working on cost-reduction strategies and operational efficiency improvements.
• In the API and export business, margin improvement is expected to stem from stabilizing RM prices, with a projected annual margin improvement of 100-150 bps for the next three years to 25% over the next seven years.
• The management of the company has retained the guidance of Unichem business and expects integration benefits from Unichem acquisition are likely to enhance procurement efficiencies and focus on expanding Unichem’s product portfolio in various markets like Europe, Australia, New Zealand, Canada, and South Africa which is likely to improve its margins.
• Further, it plans to launch approximately six products in the U.S. market by the end of FY’25, with additional products expected in the following years and Unichem is expected to launch 5 to 6 new molecules in the U.S. market in the current financial year.

IPCA Laboratories Limited: Shareholding Pattern

The promoter’s shareholding is highest in the IPCA Laboratories at 46.3%.

IPCA Laboratories Limited: Valuation

The company is doing well and expects EBITDA margins to improve to 21% going forward. A healthy product mix and raw material cost optimization are likely to improve the financial position of the company. Strong growth in the domestic formulation business with increased opportunities in the API space and a strong geographical presence would support earnings going forward.

Thus, it is expected that the stock will see a price target of ₹1,918 in 8 to 10 months’ time frame on current P/BVx of 6.06x and FY26 BVPS of ₹316.56E.

IPCA Laboratories Limited: Risk

• Intense competition
• Economic slowdown

V-Guard Industries Limited

V-Guard Industries share price was at ₹416.60 (as on December 20, 2024) and its target price is set at ₹530 with an upside potential of 27%.

V-Guard Industries Limited: Investment Rationale

• V-Guard Industries Ltd manufactures consumer electrical and electronics products. The company’s product range includes voltage stabilizers, inverters, electric & solar water heaters, fans, kitchen appliances, pumps, wires & cables, domestic switch gears, air coolers, etc.
• Its wholly owned subsidiary, V-Guard Consumer Products, recently commenced commercial production of kitchen appliances (mixer grinder & gas stove) at its manufacturing facility set up in Vapi, Gujarat. The manufacturing facility has an installed capacity of 7 lakh units per annum for mixer grinders and 3.60 lakh units per annum for gas stoves.
• The strong cash flow from the operation has helped the company to repay the loan taken for the Sunflame acquisition. In H1FY2025 it generated cash of ₹336 crore. The company plans to repay the loan in full by the end of the current financial year.

• • The management expects continued momentum and strong performance in the second half of FY’25. The electronics segment is expected to grow at 12-14%, driven by strong demand for Inverters and solar products. Consumer Durables and Electricals segments to focus on scaling operations and improving EBITDA margins.
  • On the strategic front, the company is focusing on completing functional integration post-Sunflame acquisition. Its continued emphasis on insourcing manufacturing to enhance competitiveness and improve margin. Current in-sourced manufacturing stands at 65%, with 35% outsourced.

• Consolidated Net Revenue from operations for the quarter ended September 30, 2024 is ₹1,293.99 crore, a growth of 14.1% over the revenue recorded in the corresponding period of the previous.
• EBITDA, excluding other income, was ₹110 crores, an increase of 19.2% on a Y-o-Y basis. The EBITDA margin of 8.5% is 30 basis points higher compared to 8.2% in Q2 of last year. PAT for the quarter is ₹63.39 crores, a growth of 7.5% as compared to the corresponding period of the previous year.
• The company is investing in Gegadyne, an alternate battery technology startup, to develop disruptive technology solutions, with a focus on converting potential tech ideas into viable products. Support provided to Gegadyne includes setting up pilot plants and establishing systems for large-scale production.

V-Guard Industries Limited: Shareholding Pattern

In the overall shareholding of V-Guard Industries Limited, promoters have the highest shareholding of 54.39%.

V-Guard Industries Limited: Valuation

The company has delivered healthy topline growth and margin improvement due to pricing actions taken to cover input cost movements, with adjustments ranging from 1% to 3% across categories. The growth momentum is expected to continue in the quarters ahead.

Its capex planned at approximately ₹100 crores per year to support capacity expansion indicates a sustainable growth outlook. Its investment in disruptive technology solutions would give long-term benefits to the company.

Thus, it is expected that the stock may see a price target of ₹530 in 8 to 10 months time frame on a one-year average P/BV of 9.5x and FY26 BVPS of ₹55.82.

V-Guard Industries Limited: Risk

• High commodity prices
• Economic slowdown

Conclusion

These two stocks, one from the pharmaceutical sector and the other from the electronics sector can reach their target price in the coming 8 to 10 months. But it is always better if you do your analysis before investing and set a stop loss target. To keep track of your invested stocks, open demat account with SMC Global Securities and invest on the go.

Reference:
https://www.smctradeonline.com/research/wise-money/241

Author: All Content is verified by SMC Global Securities.