Maintain BUY on Lupin - Stays on course for higher profitability - HDFC Securities

Ms. Bansi Desai, Institutional Research Analyst, HDFC Securities

Lupin's 3Q results beat our EBITDA/PAT estimates by 4%/11%, respectively. Adj. EBITDA margin improved ~185bps QoQ to 18.7% led by gross margin expansion and lower R&D cost. US business traction (4% QoQ) was a tad below expectation as Albuterol contribution was offset by weak flu product sales. We continue to remain positive on Lupin's ability to execute (market share gains in Albuterol) and monetize its complex pipeline in the US (inhalers, complex injectables). This, along with recovery in India and cost control measures is expected to drive margin improvement of ~370bps over FY21e-23e. We trim our estimates by 6-8% for FY21-23e to account for lower US sales assumption. The revised TP is Rs 1,175/sh.

Margin beat - Revenue at Rs39.5bn (+5% YoY) was largely in line with the estimate. EBIDTA margin expanded to 18.7% (+730bps YoY, +185bps QoQ) led by improvement in gross margin (+120bps YoY/QoQ, favorable product mix, lower freight cost), lower staff cost (-175bps YoY, flat QoQ) and other expenses (-180bps YoY, +50bps QoQ). Reported PAT (Rs4.4bn) was buoyed by one-time litigation settlement income (~Rs700mn) and lower tax rate. Adj. PAT (excl. forex loss) at Rs3.6bn beat our estimates by 11%.

US pipeline provides good growth visibility: Ramp-up in Albuterol (9% Gx share, targets 20% in couple of quarters), Levothyroxine (17% Gx share, targets 20%), Metformin products (re-launched) and new product pipeline - gBrovana (FY22), gSpiriva (mid FY23), gSuprep (FTF, USD200mn, FY23) and possibly gDulera (FY23) provides strong growth visibility in the near to medium term. However, Solosec continues to face challenges (Covid hit) and accordingly we trim our estimates for the same. Overall, we forecast US revenues to grow at 18% CAGR over FY21e-23e.

Key call takeaways: a) Guidance: EBIDTA margin target of 20-22%, ETR - below 30% over FY22/23; b) key product timelines in EU - gFostair launch (1HFY22), bEnbrel - gradual ramp-up, to be launched in France; Peg- filgrastim filing (Q4 FY21); c) US - expects 30-35 filings including 15-20 OSDs, 6+ injectables and 3-4 inhalation assets every year from FY22; d) key launches in US are de-risked (filed from Nagpur / Pithampur Unit 3).

Maintain BUY, risks: We trim our estimates by 6-8% for FY21-23e to account for lower US sales assumption and revise our TP to Rs1,175 (from Rs1,280 earlier) based on 23x Mar'23e EPS. Key risks: delay in key approvals, delay in resolution of plants, lower than expected margin expansion.

Shares of LUPIN LTD. was last trading in BSE at Rs.1072 as compared to the previous close of Rs. 1051. The total number of shares traded during the day was 173204 in over 5389 trades.

The stock hit an intraday high of Rs. 1081 and intraday low of 1043.4. The net turnover during the day was Rs. 183752560.

Source : Equity Bulls

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