Lupin - Strong operating performance - Centrum

Lupin's results for Q3FY13 were better than our expectations. The company reported 37%YoY growth in revenues, 360bps improvement in EBIDTA margin and 43%YoY growth in net profit. The sales growth was across all major geographies. Notably among them were, 68%YoY growth in the US market and 48%YoY in Japanese market. The higher growth in US was due to the launch of generic Tricor. The company's 22 of the 43 generic products are market leaders in the US. Lupin has entered the US generic market in the oral contraceptive (OC) segment with a basket of eight products. We have a Buy rating for the scrip with a target price of Rs699 (based on 22x FY14E EPS).

Excellent sales growth: Lupin reported 37%YoY growth in revenues from Rs18.20bn to Rs25.01bn due to excellent growth in major markets. The sales growth in various geographies is as follows: US formulations 68%YoY, Japan 48% (due to the acquisition of I'rom), S. Africa 43%, India formulations 14% and RoW 8%. However, revenues from Europe declined by 7%YoY.

Higher tax rate: Lupin's tax rate has gone up from 22.6% to 38.1% due to the expiry of EOU benefits and unrealised profit on inventory lying with the subsidiary. The management has guided a tax rate of 34-35% for FY13 and FY14.

Margin on rise: Lupin's EBIDTA margin improved by 360bps from 20.6% to 24.2% mainly due to the decline in other expenses. Its other expenses declined by 550bps from 31.2% to 25.7% of total revenues due to strong sales growth. Material cost increased by 300bps from 34.4% to 37.4% of total revenues due to the change in product mix.

Rich product pipeline in the US: Lupin has a rich product pipeline for the US market. It has filed 168 ANDAs of which 68 are approved and 100 are pending approval. The company has withdrawn 16 ANDA s from US FDA during the quarter. Lupin launched generic Tricor in the US during the quarter.

Leading player in domestic market: As per IMS MAT-Nov'12 data, Lupin ranks 11th in the domestic market. Four of its products appear in the list of top 300 brands in India. Currently, none of its brands are under price control. However, Tonact will come under price control under NPPP. 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 S. Africa. At the CMP of Rs604, the stock trades at 23.5x FY13E EPS of Rs25.7 and 19.0x 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 16% over the CMP.

Source : Equity Bulls

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