IPCA Labs Valuation Excel Model and Intrinsic Value of Shares

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IPCA Labs Valuation : About the Company

IPCA Labs operates in the API and formulations business and market leadership in such an industry comes from R&D capabilities, Patents and Approvals, Workforce and Resources at disposal. The company is also a fully integrated pharmaceutical company and manufactures over 350 formulations and 80 APIs for various therapeutic segments. The company is one of the largest suppliers of these APIs worldwide with a manufacturing leadership in over 12 APIs globally. They also have 15 APIs and 11 Formulations manufacturing facilities across the globe. This shows the scale of operations for the company.

The business model of the company is such that it operates across 2 main lines of business namely Formulations and API. The company has a market presence of more than 6 decades in India and has been a crucial healthcare partner in over 120 countries across the 6 continents. The revenue segmentation is also such that around 73% comes from Formulations and 27% comes from APIs. On a geographical basis, 48% comes from Exports and 52% comes from domestic sales. In generics, the company has 46 ANDAs filed of which 18 ANDAs are approved.

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The company has Field-force to promote brands in more than 35 countries of CIS, South East Asia, International Business, the Middle East, Latin America and Africa. It also has formulation dossiers for branded formulations registered in 54+ countries. The company is now focused on brand building in Pain, CVS, CNS, Anti-infective and Anti-malarial segments. This overall shows a well-diversified business model across products and geographies. From here, we go ahead with IPCA Labs Valuation and Intrinsic Value of its shares.

Read more here: IPCA Labs Shares Fundamental Analysis 

Methodology Used:

Discounted cash flow (DCF) is a valuation method used to estimate the value of an investment based on its expected future cash flows. DCF analysis attempts to figure out the value of an investment today, based on projections of how much money it will generate in the future. The following step by step procedure is followed.

  1. Determining the Revenue Growth Rates
  2. Forecasting the Financial Statements
  3. Deriving the FCFF and FCFE
  4. Calculating the Terminal Value
  5. Calculating the Discount Rate
  6. Discounting the Cashflows
  7. Arriving at the Intrinsic Value of the Shares

You can also get the formula based DCF Excel Model from below:

Step 1: Determining the Revenue Growth Rates

We arrive at the below table by using the past and expected future performance of both the company and the economy. This along with adjustments to changes in the management expectations, extraordinary events and other macro factors give the revenue growth rates for IPCA Labs Valuation.

Financial Year Revenue Growth Rate
Year 1 24%
Year 2 18%
Year 3 13%
Year 4 14%
Year 5 12%
Revenue Growth Rates: IPCA Labs Valuation

Step 2: Forecasting the Financial Statements

The financial statements are forecasted for a period of 5 years using the annual report data of the company. The assumptions used for forecasting are tabulated below. The Excel model is completely editable and can be adjusted for specific changes which may happen over a period of time.

Financial Statements Forecast : IPCA Labs Valuation
Financial Statements Forecast : IPCA Labs Valuation


Step 3: Deriving the FCFF and FCFE

Free cash flow to the firm (FCFF) represents the amount of cash flow from operations available for distribution after accounting for depreciation expenses, taxes, working capital, and investments. FCFF is a measurement of a company’s profitability after all expenses and reinvestments. It is given as follows. Free cash flow to equity (FCFE) is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid. FCFE is a measure of equity capital usage.

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F/S Items (INR Millions) Mar-20 Mar-21 Mar-22 Mar-23 Mar-24
Free Cash Flow to Firm -2922 1027 1598 1292 1480
Free Cash Flow to Equity 2515 4604 3309 3744 2922
FCFF and FCFE values: IPCA Labs Valuation

Step 4: Calculating the Terminal Value

Terminal value (TV) is the value of a business or project beyond the forecast period when future cash flows can be estimated. It assumes that a business will grow at a set growth rate forever after the forecast period. Terminal value often comprises a large percentage of the total assessed value.

Terminal Value Calculation Units INR Millions
Free Cash Flow to Firm 1480.11
Growth Rate 3.00%
Cost of Capital 3.78%
Terminal Value 196036.46
Terminal Value: IPCA Labs Valuation

Step 5: Calculating the Discount Rate

DCF analysis helps assess the viability of a project or investment by calculating the present value of expected future cash flows using a discount rate. Here we use the Weighted average cost of capital (WACC) to discount the cash flow. The below table from the excel model shows the calculation of WACC for IPCA Labs Valuation.

WACC Calculation for IPCA Labs Valuation.
WACC Calculation for IPCA Labs Valuation.

Step 6: Discounting the Cashflows

The WACC and the Cost of Equity for the company calculated in the above step are then used to discount the FCFF, FCFE and Terminal Value calculated in Step 3 and 4. In our case, we’ll only consider the FCFF based Intrinsic price of the shares as it represents the cash flow to all the suppliers of capital and not only to the equity shareholders. Thus we arrive at Present value of future FCFF for IPCA Labs Valuation. (Units are INR Millions)

PV of FCFF and FCFE  for IPCA Labs Valuation.
PV of FCFF and FCFE for IPCA Labs Valuation.

Step 7: Arriving at the Intrinsic Value of the Shares

Dividing the PV of the FCFF and Terminal Value (the Value of the entire firm) by the number of outstanding shares we get the per share intrinsic value. We can compare this price with the current market price of the stock to get the Discount or Premium to its intrinsic price.

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IPCA Labs Valuation Units
PV in INR Million 182545
No of Shares Outstanding (In Million) 126
Intrinsic Value 1448.77
Current Market Price of Share 2168.00
Current Discount/Premium 48%
Intrinsic Value of the Shares: IPCA Labs Valuation

IPCA Labs Valuation and Intrinsic Share Price = INR 1448.77

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References: Investopedia
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You can read more about the company on its website!
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)



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