Initiating Coverage Antique
IOL Chemicals and Pharmaceuticals - Diversifying towards being multi Product Company
Incorporated in 1986, IOL Chemicals and Pharmaceuticals Limited (ICP) is an innovation-driven Bulk Drug, Intermediates and Specialty Chemicals Company, built on a prolific history of progress and expansion over three decades. The Company is largest producer of Ibuprofen and its derivatives globally. ICP largely operates in Pharma (API) and Specialty Chemicals space, with large scale production of various high volume products like Ibuprofen, Metformin, Pantoprazole, and certain Specialty Chemicals such as Ethyl Acetate and Iso Butyl Benzene. For Ibuprofen ICP is the world's largest producer having ~30% market share globally. In Chemicals segment ICP is the world's second largest producer of Iso Butyl Benzene (IBB) having ~30% global market share.
Valuation and View
Given the capacity expansion and new product introduction, the dependency on Ibuprofen is expected to come down from 82% to 48% by FY24. We factor worst case in pricing pressure in Ibuprofen and other large products and assume a normalized EBITDA Margin range of 22-23% for ICP. With no debt on the books and ICP generating healthy cash flow every year, the Capex programmes are expected to be funded via internal accruals. We initiate coverage on the stock with a Buy rating and a Target Price of INR 806, valuing the company at 11x P/E on FY24 EPS.