Pharma major’s 284 bps EBITDA margin gain and Unichem turnaround strategy draw bullish analyst calls
IPCA Laboratories has emerged as a growth story in India’s pharmaceutical sector with two leading brokerages issuing buy recommendations following the company’s third-quarter performance that showcased margin expansion even as revenue growth remained modest.
The Mumbai-based drugmaker’s ability to expand its EBITDA margin by 284 basis points year-on-year to 22.7% in Q3FY26 has caught the attention of analysts, who see a multi-year runway for profitability improvements driven by the integration of its Unichem acquisition and operational efficiencies.
Strong Profitability Gains Offset Tepid Top-Line Growth
IPCA reported sales of Rs 23.92 billion for the December quarter, growing just 7% year-on-year—a figure that might appear underwhelming at first glance. However, the company’s operational execution told a different story.
“IPCA reported in-line revenue and better-than-expected EBITDA/PAT (10%/12% beat) in 3QFY26, aided by product mix, favorable currency and a lower tax rate,” Motilal Oswal noted in its research report.
The gross margin expanded a substantial 226 basis points year-on-year to 72.5%, while the company demonstrated cost discipline with staff costs rising only 10% and selling, general and administrative expenses increasing a mere 4% despite the revenue growth. This combination drove EBITDA to Rs 5.43 billion, up 22% year-on-year.
Adjusted profit after tax surged 38% to Rs 3.18 billion after accounting for one-time gains, significantly outpacing revenue growth.
Domestic Business Powers Growth Engine
The India formulation business, which accounts for 41% of total sales, demonstrated robust momentum with 12% year-on-year growth in the third quarter, outperforming the broader Indian pharmaceutical market.
“IPCA remains on a robust growth path in domestic formulation (DF) segment, as the company not only delivered healthy double-digit YoY growth but also outperformed the industry,” Motilal Oswal highlighted.
The company’s performance across therapeutic segments was particularly impressive. According to management commentary, IPCA outpaced the industry in chronic therapies with 15% growth compared to the industry’s 12%, while acute therapies saw 8.4% expansion versus the IPM’s 6.9% growth.
Pain management—a key franchise for IPCA—grew 13% year-on-year, while cardiovascular therapy witnessed a revival with 16% growth following reorganization. Dermatology, neurology, and anti-diabetes segments posted growth of 22%, 17%, and 14% respectively.
The company is also positioning itself to participate in India’s emerging GLP-1 market by looking to in-license Semaglutide, the active ingredient in popular diabetes and weight-loss medications.
Export Formulations Show Momentum
The export formulation business delivered strong performance with 17% year-on-year growth, driven by different market segments showing varied trajectories.
Generic exports surged 21% year-on-year to Rs 2.7 billion, representing 51% of export formulation sales. Branded generics jumped 28% to Rs 2 billion, though institutional sales declined 21% to Rs 583 million.
“Overall, US sales (IPCA + Unichem) grew 17% YoY to Rs 3.95bn (for 9M it grew 15% to INR 11.4 bn),” HDFC Securities reported from the company’s conference call.
The US market strategy appears to be gaining traction, with approximately 35 US registrations in place, five already commercialized, and another 5-7 molecules expected to launch over the next 12-15 months. The company plans to file 5-6 new molecules annually to sustain its US pipeline.
The Unichem Challenge and Opportunity
The Unichem acquisition, which contributes 22% of consolidated sales, remains a work in progress. The subsidiary reported a modest 2% revenue decline in Q3FY26 to Rs 5.2 billion, primarily due to temporary market share losses in select molecules in the US market, which contributes roughly two-thirds of Unichem’s revenue.
EBITDA at Unichem fell 44% year-on-year with margins contracting 680 basis points to 9.2%, highlighting the integration challenges ahead.
However, both IPCA’s management and analysts see significant runway for improvement. “It expects Unichem to gradually improve through cost optimization, shifting API sourcing to IPCA’s in-house facilities, ramping up operations in EU and RoW markets with new product registrations, and improving capacity utilization,” HDFC Securities noted.
“Unichem’s growth trajectory should improve with recovery in lost US share, scaling of Ipca’s pipeline through its platform, and 4-5 planned US product launches over the next 12-24 months, alongside ongoing European filings,” Motilal Oswal added.
Multi-Year Margin Expansion Story
Both brokerage houses see IPCA as positioned for sustained margin improvement over the coming years.
“We believe IPCA is well-positioned for growth (~10% CAGR over FY25-28E), given steady India growth (new launches, steady growth in focused therapies, and scale-up in chronic categories) and export formulation ramp-up (through Unichem integration and new launches in the EU/RoW), with improving margins (~16%/23% EBITDA/PAT CAGR over FY25-28E),” HDFC Securities stated in its report.
HDFC Securities reduced its EPS estimates by 5% for FY26 and 2% for FY27 while maintaining FY28 estimates, reflecting the third-quarter results. The firm maintained its ‘Buy’ rating with a revised target price of ₹1,750, based on 28x Q3FY28E earnings.
Motilal Oswal raised its earnings estimates for FY26 based on improved execution in branded generics in both domestic and export markets. The firm values IPCA at 28x 12-month forward earnings, arriving at a target price of Rs 1,720, maintaining its ‘Buy’ rating. term.
