Maintain BUY on Lupin - On a path to higher profitability - HDFC Securities

Ms. Bansi Desai, Institutional Research Analyst, HDFC Securities

Lupin's 2Q results were operationally in line as good traction in revenues (+9% QoQ), savings in staff cost led to EBITDA margin improvement of ~300bps QoQ to 16.8% (adjusting for forex loss and one off costs). Management commented on continued focus on cost control and operating leverage benefits to kick in from Q4 onwards. US generics business is expected to see increased momentum in 2H with higher contribution of gAlbuterol, gGlumetza (re-launched) and flu drugs. We remain positive on Lupin's ability to execute in the US (market share gains in key launches) which will be key to drive margin expansion of ~450bps over FY21-23e. We trim our estimates for FY21/22/23 by 6%/6%/5% to factor slightly higher other expenses and lower other income. Revised TP Rs1120/sh.

Operationally in-line- Revenues grew to Rs38.4bn (+3% YoY, +9% QoQ) as healthy growth in US (+15% QoQ) and EMEA (+2% YoY, 30% QoQ) offset muted growth in India (down 1% YoY, acute portfolio underperformed). EBIDTA margins improved to 16.8% (+350bps YoY, +300bps QoQ) as lower staff cost (-240bps YoY, -460bps QoQ) offset higher other expenditure (+50bps YoY, +220bps QoQ). Reported PAT came lower at Rs2.1bn impacted by forex loss of Rs540mn and lower other income.

Market share gains in key products will drive near term growth: Ramp up in Albuterol (by Q4), Levothyroxine (current market share is 12-13%), gGlumetza (re launched at end of Q2) and flu products (2H is seasonally strong) will drive growth in the near term. Lupin has also made good progress in inhalation products, complex injectables, peptides and depot products which will drive growth over medium to longer term. We expect US to grow at 12% CAGR over FY20-23e.

Key call takeaways: a) Guidance - India growth - 6-8% in 2H, EBIDTA margin - 18.5% by Q4 and 20-22% over next few quarters, ETR - mid-30s for FY21; b) Key products -gFostair (EU) - expect approval in Q4, bEnbrel - launched in Germany, Finland, Croatia and to be launched in France and Belgium, Peg-filgrastim - on track to file in the US by end of FY21, gSpiriva- launch post June 2022; c) Somerset inspection is ongoing; d) US pricing erosion - stabilized to mid single digit; e) Albuterol pricing has held up well.

Maintain BUY, risks: We revise our TP to Rs1,120 (from Rs1,185 earlier) based on 23x Sept'22e EPS. Key risks: delay in approvals, delay in resolution of key plants, drug price-fixing lawsuit in the US.

Shares of LUPIN LTD. was last trading in BSE at Rs.916.4 as compared to the previous close of Rs. 935.95. The total number of shares traded during the day was 137345 in over 4587 trades.

The stock hit an intraday high of Rs. 944.8 and intraday low of 912.85. The net turnover during the day was Rs. 127029074.

Source : Equity Bulls

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