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Growth to be driven by generics
Net profit ahead of expectations: Lupin’s 2QFY11 adj net profit of `2.1bn,
up 49% YoY, is ahead of JMFe at `1.9bn. EBIDTA at `2.9bn (20.8% margin) is
in-line with expectation with lower raw material costs due to product mix and
cost-control offsetting higher than expected overheads. Sales grew 26.1% to
`14.1bn, higher than estimated `13.6bn. Tax rate for 2H11 is expected at
13.0-13.5% with capex guided at `4-5bn for next 3 years.
US business on course, domestic sales impacted by inventory
adjustment: US revenues at `4.8bn (up 43% YoY) were higher than JMFe of
`4.5bn. Brand business grew 10% YoY, lower due to netting off rebates
against sales beginning this quarter while up 24% on an adjusted basis. The
US generic business grew 53% YoY driven by growth in base business and
new product launches (primarily Lotrel). Lupin filed for 2 ANDAs in the
quarter, taking the total filings to 132 of which 45 have been approved. 54
are PIV filings with 15 of them being FTF. Domestic formulations grew 14%
YoY, lower than JMFe due to one-time inventory adjustment in the acute care
area, with branded business growing >20% with healthy prescription trends.
Kyowa grew at strong 22% YoY (17% CER growth) with 4 launches expected in
Nov’10.
Allernaze launch delayed; US generic pipeline visibility remains strong:
Lupin has delayed the US launch of Allernaze due to product validation issue.
Management indicated “going back to drawing board”. Given the uncertainty,
we remove this from our model till we get further clarity. Lupin has received
the US FDA approval for Suprax chewable tablets and filed Suprax Drops. The
increased US branded sales force (from 70 to 160) has helped stabilise the
total prescriptions for Antara while maintaining the growth in new
prescriptions. We remain positive on the US generics pipeline with OCs and
para-IVs expected to be key drivers. Lupin has 23 OC filings with 4-5 products
expected to be launched by Sep’11 and 12-15 products by Sep’12. Lupin has
initiated programs on derma and asthma for generics. However, no IND is
filed for brand segment yet. It continues to explore inorganic options but
highlighted that market is competitive.
We introduce FY13E EPS at `27.7; maintain BUY: We roll–forward to Dec’11
with a revised target price of `520 at 20x Dec’12E EPS. Approval delays and
increased competition for branded products remain key risks. Maintain BUY.
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