Should investors buy Ipca Labs after sharp fall?

MUMBAI: As shares of Ipca Labs falls over 12 per cent following import alerts for its two manufacturing units, analysts feel it will take long time for the company to resolve issues. However, long term investors can buy the stock on dips.

IPCA Labs’ units in Pithampura (MP) and Piparia ( Silvassa) have failed to meet USFDA’s GMP.

Sales of Hydroxychloroquine Sulfate and Propanolol Hydrochloride, which account for around 45 per cent of Ipca’s total US sales in FY2014, are exempted from the ban.

This is the third import alert for the company. In January, it had received import alert for its Ratlam plant. It is the only USFDA approved API plant and there were concerns that US revenues would get impacted.

According to analysts Ipca will have to follow the measures laid out by the US FDA to resolve the issue. In the past, the time taken by Indian companies to resolve issues has varied from few months to 2-3 years.

"After the earlier downgrades, we have pruned our estimates further. We have cut the FY2016 EPS numbers by 20 per cent. Thus at CMP, the stock trades at 20xFY2016E earnings," said Sarabjit Kour Nangra VP Research - Pharma, Angel Broking.

She is of the view that any downside can be used by investors to buy into the stock, with a long term view on the stock.

Nirmal Bang is of the view the alerts are sentimentally negative for the company though no immediate financial impact is expected on the stock.

Meanwhile, Sharekhan in its report said the latest development is set to impact the company’s prospects for longer period. As the remedial measures will require a significant amount of costs and time there would be severe impact on company’s operating performance.

The brokerage currently has Hold rating on the stock.