Lupin - Riding on key products - Reduce - Elara Capital

• Rating : Reduce
• Target Price : INR1,781
• Downside : 1%
• CMP : INR1,796 (as on 14 May 2010)

Riding on key products

Lotrel, branded drugs drive growth in US

Generic Lotrel, first time sales in Antara, and in-licensed brands from Forest Labs contributed predominantly to the company's 31% growth in the US generics in FY10. However, we observe that Lupin faced a tepid growth in its older portfolio or core generics, lead by Suprax. The company has reported a minimum growth in overall Suprax sales due to a spurt of 16-18% in Q4 while volumes in prescription generation remained lower in the US market.

Slowdown in new launches in US may dent Lupin in FY11

The management's plan to launch six new products could affect core business growth in the US market in FY11. We note that the management guidance is unable to identify any growth driver among new launches, but heavily depends on Lotrel for revenue growth in the US. We expect Lotrel sales to come down significantly post the entry of two more generic competitors including Dr Reddy's. Full impact of the Antara promotion and first time revenues on Allernaze post the launch August 2010 would drive branded portfolio business in the US market.

Oral contraceptives sustain interest, maintain reduce

The management has given a guidance of 1% growth in EBITDA margin and expects to maintain a similar revenue growth in FY11. Lupin's prospect in oral contraceptive (OC) generics in the US remains key to investor interest. With a lower competition and a portfolio of 32 drugs, Lupin is rightly targeting the USD1.7bn OC market in the US (including the 2-3 exclusive generic opportunities). However, the company may see a slump in revenue growth for core generics in the intermittent period due to few fresh launches in US. Price erosion in Lotrel due to higher competition and lack of growth drivers among new launches could affect the generic business. With a 20% growth in domestic formulations, we expect the growth here to be at 15-16% due to the introduction of new drugs in lifestyle therapeutic areas. At a current market price, the valuation of the company is challenging. Hence, we downgrade our recommendation to Reduce.

Source : Equity Bulls

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