Lupin- In-line quarter; growth outlook intact: Kotak Sec

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Lupin (LPC)
Pharmaceuticals
In-line quarter; growth outlook intact. Sales at Rs14 bn and PAT at Rs2.1 bn were
3% lower than our estimate. The growth outlook is intact in FY2012E with (1) abovemarket
growth maintained in India as reported in 1HFY11 at 19% and (2) increase in
the pace of approvals in US and increasing visibility of generic launches in US and
(3) OCs launch in Sep ’2011E. We maintain our FY2011-12E earnings estimates and
expect EPS of Rs19.7 in FY2011E increasing to Rs24.3 in FY2012E, ahead of consensus.
We believe visibility on US launches will lead to an upgrade in consensus estimates.
Maintain ADD with our target price revised to Rs490 (20XFY2012E earnings).





Sales at Rs14 bn were 3% lower than our estimate due to lower US revenues
Revenues from domestic finished dosage grew 16% yoy, in line with our estimate with Lupin
launching 22 products in 1HFY11 in India. US/EU finished dosage (37% of sales) revenues at Rs5
bn was 10% lower than our estimate. Japan (11% of sales) grew 17% in local currency versus our
estimate of 12%. Branded business in US (30-35% of US sales) grew 10% yoy; however, adjusted
for rebates netted from sales, underlying growth was 24% in 2QFY11.
PAT at Rs2.1 bn, 3% lower due to lower operating margin
PAT at Rs2.1 bn was 3% lower than our estimate. However, operating margin at 19% was 150
bps lower than our estimate. Although gross margin at 61% was higher than our estimate, staff
cost at Rs1.9 bn was up 36% yoy and 20% ahead of our estimate and was the main reason for
lower margin. R&D and other expense were broadly in line with our estimate. Although EBITDA
was 9% lower than our estimate, PAT was 3% lower due to (1) higher other income, up 30% qoq
and (2) lower tax rate at 11% versus our est. of 17%.
We leave our estimates unchanged; US pipeline intact and FY2012E to see number of launches
We maintain our FY2011-12E earnings estimates and expect EPS of Rs19.7 in FY2011E increasing
to Rs24.3 in FY2012E, ahead of consensus earnings. We maintain our FY2011-12E sales growth
estimate at 20% on account of (1) above-market growth maintained in India as reported in
1HFY11 at 19%, (2) increase in pace of approvals in US and increasing visibility of generic
launches in US and (3) OCs launch in Sep ’2011E. We believe visibility on US launches will lead to
upgrade in consensus estimates.
We maintain ADD with our price target revised to Rs490 (20XFY2012E earnings)
We expect strong earnings performance to continue and estimate PAT growth of 24-28% in
FY2011-12E. We, therefore, increase our PT to Rs490 on account of increase in PE multiple to 20X
(from 16X).


Key takeaways from call—US pipeline remains intact
􀁠 US product pipeline in F2012E intact. Lupin expects to launch 10 non-OC products in US
upon approvals. YTD, we have seen pace of approvals pick up. Among Indian peers,
Lupin has the second largest number of filings awaiting approval at FDA behind SUNP at
87 as of Sep ’2010.
􀁠 Allernaze launch in 2HFY11E unlikely. Allernaze launch has been delayed with no
indication of timeline due to certain scale-up issues. Lupin expects to ramp up sales of
Antara in 2HFY11E based on generating new prescriptions and arresting decline in
existing prescriptions, now that the primary field force of 100 MRs who were recruited in
March 2010 is in place.
􀁠 OCs to be launched in September 2011E. Lupin has made 23 filings in the OC (oral
contraceptives) category with US FDA. LPC expects the first set of OC approvals in
Sep ’2011E and expects to launch 4-5 OC products by September 2011E. We retain our
estimate of US$50 m revenues from the oral contraceptive segment in FY2012E. Lupin
expects to bring 12-15 OCs into market during Sep ’11-Sep ’12 and expects FY2013E to
be the first year to reflect full impact of its OC portfolio.
􀁠 Despite the slow start in 1QFY11 where Japanese revenues grew at 2% yoy, growth
increased to 17% in local currency terms in 2QFY11. Lupin launched one product in
Japan in 1QFY11 and expects to launch four more in December, maintaining the same
run rate as in FY2010, where six products were launched in FY2010.
􀁠 Lupin’s acquisition plans are focused on three areas: (1) brands in US, (2) technology
companies and (3) companies acquired to expand geographical presence, in particular in
Latin America.
􀁠 Lupin will continue to file 35 ANDAs per annum, as seen in FY2010. In FY2011E, it will
file ANDAs in Ophthalmology therapy, followed by dermatology in FY2012E and asthma
in FY2013E.