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Research
Lupin - Limited upsides; Hold - Anand Rathi
Posted On : 2014-01-05 19:40:13( TIMEZONE : IST )
Strong quarter. We expect Lupin to report a modest 10.3% yoy revenue growth on a high base, led by US generics, emerging markets and domestic formulations. EBITDA margin is expected to improve 40bps yoy, to 24.6%, on the back of favourable currency and improved gross margins. We expect adjusted PAT to grow 24.8% yoy, driven by strong growth in revenue, EBITDA margin expansion and lower effective tax rate. We have not factored in any MTM loss or gain on account of currency fluctuations.
US generics, emerging markets key growth drivers. We expect Lupin to report strong revenue growth, mainly driven by 23% yoy increase in the US generic business led by product launches (including oral contraceptives). Its domestic formulations business is expected to grow at modest 12% due to impact of implementation of new drug pricing policy and general slowdown in the industry. We expect revenues from emerging markets to grow at 20.6% yoy in line with historical growth rate. Japan would report a decline of 9.4% yoy, mainly due to lower orders in from subsidiary and currency factor.
Strategic agreement to promote Locoid Lotion. Lupin recently signed an agreement with the US-based Onset Dermatologics to promote Locoid Lotion to paediatricians in the US market. Locoid is the most highly prescribed mid-potency steroid brand in the US. This move is in line with the company's strategy of expanding branded portfolio for the US market.
Out take. We remain positive on the business model and growth outlook of the company. We expect 15.5% revenue and 18.7% adjusted net profit CAGR over FY13-16. However, we do not expect any major improvement in the base business margin, and threat persists in terms of generic launch of Suprax. We believe current valuations do not provide much upside potential. The stock is trading at an expensive valuation of 25x FY14e and 21.1x FY15e earnings. We maintain Hold, with price target of Rs. 954 based on 22x FY15e earnings. Risks. Currency fluctuations, regulatory hurdles.
