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Lupin (LUPN.BO)
Alert: Takeaways from India Pharma Conf., Dec. 6-7
Takeaways from Mumbai — Lupin presented at our India Pharma Mini-Conference
in Mumbai. Below are key takeaways.
Growth/margin expansion to continue — We expect growth to remain robust, as key
businesses in US (both branded and generics), India and Japan continue to see
good traction. Better realizations on products across geographies, alternative API
sourcing for the Japanese market and supplying into Japan, Phillipines and South
Africa to India are some of the key levers for margin expansion.
US branded biz update — 1) Antara is expected to move towards peak sales
(~US$75m) in the next 3-4 quarters, as prescriptions have started picking up; 2)
Allernaze launch is delayed but is expected in 4-6 months (FY12); 3) For Suprax,
Lupin is confident that it has staved off generic competition for at least 12-18
months; 4) Apart from Suprax brand extensions that are already launched, other
extensions are being planned in order to extend brand life.
US generics biz update — 1) Existing product basket continues to do well; 2) The
oral contraceptives basket (~25 products, ~US$4bn market) will see first product
approval in 2QFY12 and most products would be launched by end of FY13; 3)
Launch of additional strengths of generic Lotrel will take place during 2QFY12; 4)
The ophthlamics basket (~21 products, ~US$3.5bn market) will see the first
product launch in the next one year.
India business to sustain growth — India business growth rates are sustainable
(18-20%), as impact of sales force ramp-up and sales force productivity
enhancement plays out. Indian market should continue to grow at over 15%, and
Lupin feels that there is enough scope for the larger players to grow faster by
taking market share from smaller players.
Other key takeaways — 1) The share in the India respiratory segment has gone up
to 20%; 2) Japan government continues to be proactive on genericsation and
should open up a large market for generic players; 3) It is working on an
interesting biosimilars pipeline (c7 products) and should be able to launch
products in the emerging markets over the next one year; 4) Actively looking at
acquisition opportunities in LatAm, W. Europe, Japan etc; 5) Some niche launches
can be expected in the US over the next one year.
Lupin
Valuation
Given that pharma is a growth sector, we use P/E as our primary method to value
the base business of pharma companies. Lupin has historically (last six to seven
years) traded in a band of 10-34x one-year forward earnings. We value Lupin at
20x 12m forward earnings, in line with the sector leaders such as Cipla, Dr
Reddy’s & Sun Pharma due to its leadership in key markets/products & robust
financial metrics. At 20x Mar12E recurring FDEPS, we arrive at a target price of
Rs 500.
Risks
We rate Lupin Low Risk, inline with the recommendation of our quantitative riskrating system, which tracks 260-day historical share price volatility. Key downside
risks to achieving our target price include: 1) Earlier than expected Generic
competition in Suprax (c8% of FY10 sales); 2) INR appreciation would hurt, given
its exposure to global markets; 3) Reasonable exposure to the domestic
formulations market (29% of sales) leaves Lupin vulnerable to any significant
widening of the price control net. 4) Inability to effectively scale up the Kyowa
operations or Antara sales.
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