Maintain HOLD on Lupin – TP Rs.550 - Geojit BNP Paribas

- Q2FY13 results came in line with estimates and is the second quarter in a row where Lupin just about met consensus.

- Sales came in line while EBITDA managed to beat estimates. EBITDA came in higher largely due to lower R&D spend for Q2 (4% vs. 7% average spends) and this situation is likely to correct.

- Despite the EBITDA beat, PAT came in line with estimates due to a higher tax rate (33% vs. 25% guidance).

- Key geographies for Lupin also performed in line with expectations.

- In the US, generics sales were flat, QoQ, and branded sales fell by around 10%. There were few H1FY13 launches in the US and H2FY13 will be key with limited competition launches (eg Tricor), two extended release products and oral contraceptives.

- Lupin's valuations of 20x one-year forward PE (10% premium to sector valuations) are driven by expectations of industry beating growth in India and 25%+ growth in the US generic business.

- While Lupin is expected to outperform in India due to its superior product mix, growth of its US generic business mainly depends upon the timely launch and execution of limited competition products.

- Current valuations seem to adequately discount Lupin's future earnings potential. It could expand towards the valuations of large size generic peers (22-24x one-year forward PE) if there are positive surprises in new launches.

- We maintain our HOLD rating with a TP of Rs.550 over one year.

Source : Equity Bulls

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