Lupin Q4FY21 Results Review - Positives in the price - HDFC Securities

Mr. Bansi Desai, CFA, HDFC Securities and Mr. Karan Vora, Institutional Research Analyst, HDFC Securities

Lupin's 4Q sales/EBITDA was ~5%/9% below our estimates, largely on account of subdued US (+4% QoQ, weak flu season offset Albuterol contribution) and weak API business (-22% YoY). EBITDA margin at 18.7% remained flat QoQ. Management guided for double-digit growth in key markets (India and US) in FY22 and EBITDA margin improvement to 21-22% by FY23 (vs. 17.2% in FY21). We continue to remain positive on Lupin's ability to execute and monetise its complex pipeline in the US (inhalers and complex injectables). We factor in ~460bps margin improvement (to 21.8%) and ~40% earnings CAGR over FY21-23e, driven by operating leverage. However, at 31x/23x FY22/23 EPS, the positives appear priced in. We tweak our estimates by -3%/+4% for FY22/23e and revise the TP to INR1,220. Downgrade to ADD.

Soft quarter, lower tax boosted PAT: Revenue declined by 2% to INR37.8bn as healthy growth in India and growth markets (+8% YoY) offset the subdued performance in the US (+4% QoQ) and API business (-22% YoY, lower antibiotic volumes). EBITDA margin at 18.7% remained flat QoQ as savings in staff cost (-98bps QoQ, lower incentives, one off) were offset by higher other expenses (+70bps QoQ) and R&D (+30bps QoQ). Adj. PAT at INR4.6bn (+50% YoY) was boosted by lower tax rate of 10%.

US pipeline provides decent growth visibility: Among the key existing products, Albuterol ramp-up (8%+ Gx share) has been slower than our expectation; however, Lupin continues to aim for 20% market share over the next few quarters. Levothyroxine has seen improvement in market share (~19% vs. 12% in FY20). New product pipeline - gBrovana (FY22), gSpiriva (FY23), gSuprep (FTF, USD200mn, FY23) and possibly gDulera (FY23) - provide strong growth visibility in the near to medium term. We forecast 15% CAGR over FY21-23e, led by ramp-up in existing products, new launches, and monetisation of inhalation pipeline.

Key call takeaways: (a) Guidance: EBITDA margin of ~21-22% by FY23, US - targets USD1bn sales in two years, ETR - ~27-28% in FY22/23; (b) key product updates in EU - gFostair - expect launch in coming months, bEnbrel - ramp-up to be gradual; (c) US pipeline - gBrovana to be launched in CY21, Peg-filgrastim - filed, awaiting FDA inspection, to launch in 15-18 months, gSpiriva - under priority review, expected to be launched in FY23, litigation is ongoing; (d) USFDA inspection - draft guidelines to conduct remote inspection is in place; however, there is no clarity on timelines.

Downgrade to ADD, risks: We tweak our estimates by -3%/+4% for FY22/23e to account for lower US sales and lower tax rate and revise the TP to INR1,220, based on 23x FY23e EPS. At 31x/23x FY22/23 EPS, the positives appear priced in. Downgrade to ADD. 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.1178.8 as compared to the previous close of Rs. 1210.75. The total number of shares traded during the day was 329802 in over 9148 trades.

The stock hit an intraday high of Rs. 1233 and intraday low of 1165.95. The net turnover during the day was Rs. 392282538.

Source : Equity Bulls

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