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Research
Lupin - Long-term sustainable growth - Centrum
Posted On : 2012-10-27 00:18:45( TIMEZONE : IST )
Lupin results for Q2FY13 were below our expectations. The company reported 30%YoY growth in revenues, 40bps decline in EBIDTA margin and 9%YoY growth in net profit. The sales growth was across all major geographies. Notably among them were, 20% YoY growth in the US market and 85%YoY growth in Japanese market due to the acquisition of I'rom. Lupin is likely to benefit from the $170bn (Rs9,010bn) patent expiry opportunity till 2015. The company's 19 of the 42 generic products are market leaders in the US. Lupin has entered the US generic market in the oral contraceptive (OC) segment with a range of products. We have a Buy rating for the scrip with target price of Rs699 (based on 22x FY14E EPS).
- Good sales growth: Lupin reported 30%YoY growth in revenues from Rs17.72bn to Rs23.01bn due to excellent growth in major markets. The sales growth in various geographies is as follows: India formulations 18%, US formulations 20%, Europe 36%, Japan 85% (due to the acquisition of I'rom), S.Africa 19% and RoW 51%.
- Higher tax rate: Lupin's tax rate has gone up from 21.7% to 32.6% due to the expiry of EOU benefits and higher tax rate of its overseas subsidiaries. The management has guided a tax rate of 27-28% for FY13 and FY14.
- Margin under pressure: Lupin's EBIDTA margin declined by 40bps from 22.8% to 22.4% mainly due to the increase in material cost. Material cost went up by 500bps from 33.7% to 38.7% of total revenues due to the change in product mix. In Q2FY12, Lupin received Rs881mn from Medicis for intellectual property. Other expenses declined by 470bps YoY from 30.6% to 25.9% of total revenues.
- Rich product pipeline in the US: Lupin has a rich product pipeline for the US market. It has filed 178 ANDAs of which 65 are approved and 113 are pending approval.
- Leading player in domestic market: As per IMS MAT-Aug'12 data, Lupin ranks 10th in the domestic market. Four of its products appear in the list of top 300 brands in India. Currently, none of them are under price control. Two of its brands Tonact and Gluconorm-G will come under price control under NPPP. However, if combinations are excluded, Gluconorm-G would be outside price control. Hence, Lupin would have minimal impact due to NPPP.
- Valuations: We expect Lupin to benefit from the strong global generic business in the US, Japan and other emerging markets. The company is likely to benefit from excellent growth in the domestic market. At the CMP of Rs563, the stock trades at 21.9x FY13E EPS of Rs25.7 and 17.7x FY14E EPS of Rs31.8. We have a Buy rating for the scrip with a target price of Rs699 (based on 22x FY14E base EPS of Rs31.8) with an upside of 24.1% over the CMP.
