Lupin – Flawless execution; poised to grow - Religare

High quality US filings to pan out: LPC's 19% sales CAGR over FY13-16E would be driven by a resurgent international, (73% of sales) sustained domestic (27% of Sales) outperformance:

- Expect 18-20 new generic launches p.a. over low-competition segments of the US business (31% of sales) resulting in 25% growth. US branded growth to recover on (a) new licensing deals, (b) line extension for Suprax (drops, chewables; Sales US$120m) and (c) low dose Antara (Sales US$8m).

- Japan (14% of Sales) offers long-term opportunity with l'rom (Japanese subsidiary) profitability to improve on synergies with Kyowa. Product launches to intensify on recent filings.

- Domestic Chronic share to rise from 60% (of Sales) now to 65%+ over FY13-16 with new licensing deals/ therapy divisions getting launched. Forecast 18% CAGR over this period.

Margins on uptick: EBITDA margins to expand 50bps over FY13-16E to 24% driven by (a) high margin US launches (91 pending ANDAs, 70+ P-IVs) including scale up of OC, Opthalmology portfolio and products like Niacin, Yaz, etc , (b) improved Japan profitability (site transfer, product synergies with I'rom) and (c) higher utilisation of Indore SEZ.

Upgrades to drive momentum: LPC trades at 17.5x 12M fwd P/E, ~13% discount to its historic (3-yr) avg. Expect earnings upgrades (we are 5-7% above street) on US growth and better profitability.

Key risks: (a) regulatory delays affecting key US launches, (b) Generic competition in Suprax (14% of profits).

Source : Equity Bulls

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