Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Earnings aided by lower tax and interest costs
Lupin’s (LPC) Q3FY11 results were below estimates. EBITDA, of INR 2.97 bn,
was 3% below estimate of INR 3.1 bn. EBITDA margins, of 19.7%, declined
114bps Q-o-Q and 90bps Y-o-Y, led by increase in R&D costs, forex loss of INR
170 mn and higher other fixed overheads (primarily from commissioning of
Indore SEZ). Revenue of INR 15.1 bn grew 19% Y-o-Y, in line with our estimate,
largely aided by higher other operating income of INR 430 mn (180% Y-o-Y).
PAT of INR 2.24 bn was higher than our estimate of INR 2.08 bn, benefiting from
lower tax (9% versus estimated 18%) and interest costs (-28% Y-o-Y).
Sharp decline in US branded sales: A key negative
US sales of INR 5 bn (10% Y-o-Y; 6% below estimates) had negative impact
from de-growth in branded business (-22% Y-o-Y). This miss was led by higher
base in Q3FY10 (from channel stocking in Antara and H1N1 led demand for
Suprax) and changes in accounting policy. Adjusting for the above, growth has
been 4-5% Y-o-Y. While LPC indicates positive secondary trends in Suprax
franchise (suspension 15% Y-o-Y and tablet 72% Y-o-Y) and pick up in Antara,
we believe it is yet to reflect in the numbers. US generics grew 31% Y-o-Y, to
INR 3.5 bn (above our estimates), despite slow rate of approvals. Ex-US, sales
grew 21% Y-o-Y, led by higher growth in API (19% Y-o-Y), Europe (72% Y-o-Y)
and other ROW markets (36% Y-o-Y).
High base effect of Lotrel could impact operating performance
Lotrel contributed ~USD 13-15 mn revenue per quarter since its launch in Q4
FY10 (EBIDTA margins of 65-70%). With significant price erosion (60-70%) post
launch from other players (now 5-6 players from 3 in Q4FY10), we expect LPC
margins in the US generics to remain under pressure for the next three quarters.
Moreover, de-growth in the branded segment in the US could further impact
margins, as business has relatively high margins than generics.
Outlook and valuations: Long-term play; maintain ‘BUY’
We are positive on the long-term growth of the company, however, we expect
pressure on earnings in the next 2-3 quarters given higher base effect of Lotrel
and concerns in branded formulation. We are revising down our earnings by 3%
for FY11E and 8% for FY12E and introduce our FY13 numbers with EPS of INR
27. The stock has corrected more than 11% in the past two days. We believe
any further correction in the price should be used as a buying opportunity. We
maintain our ‘BUY’ rating on stock.
Earnings aided by lower tax and interest costs
LPC’s Q3FY11 results were below estimates. Despite in line revenue growth and higher
gross margins, operating margin declined 100bps Y-o-Y due to higher employee costs,
increased expenditure on R&D and operational forex losses, partly offset by higher
dossier income.
Revenue of INR 15.1 bn grew 19% Y-o-Y, in line with our estimates, aided by higher
other operating income of INR 430 mn (180% Y-o-Y). US sales growth was subdued and
grew 10% Y-o-Y versus 16% estimated, largely due to de-growth in branded formulation
business (-22% Y-o-Y) which has been the key negative.
EBITDA, at INR 2.97 bn, grew 14% Y-o-Y (versus our estimate of INR 3.1 bn) and was
partly aided by higher other operating income. Adjusted for other operating income,
EBITDA of INR 2.54 bn was 9% below our estimate of INR 2.8 bn. EBITDA margins, of
19.7%, declined 114bps Q-o-Q and 90bps Y-o-Y, led by increase in R&D expenses (7.8%
of sales versus 7.4% in Q3FY10), forex loss of INR 170 mn (not factored in our estimate)
and higher other fixed overheads (employee and S,G&A costs, primarily from
commissioning of Indore SEZ). However, the company expects margins to improve in
Q4FY11 and guided for 70-75bps expansion in FY11.
PAT of INR 2.24 bn was higher than our estimate of INR 2.08 bn, benefiting from lower
tax (9% versus estimated 18%) and interest costs (-28% Y-o-Y). LPC has given tax
guidance of 11-12% for FY11 (versus earlier guidance of 13.0-13.5%).
Sharp decline in US branded sales: Key negative
US sales grew 10% Y-o-Y, to INR 5 bn, 6% below our estimates. US branded
formulations sales declined 22% Y-o-Y, to INR 1.45 bn, in a seasonally strong quarter,
largely impacted by higher base in Q3FY10 (from channel stocking in Antara and H1N1
led higher demand for Suprax) and changes in accounting policy for revenue recognition.
Adjusting for the above, revenue growth has been 4-5% Y-o-Y, which is a cause for
concern given higher margins of the business versus generics. The branded sales have
also been impacted from lean inventory at distributor end (one week from earlier 3-4
weeks). While, management believes inventory will pick-up in the channel, and sees
positive secondary trends in terms of higher prescription growth in Suprax franchise
(suspension 15% Y-o-Y and tablet 72% Y-o-Y) and pick up in demand for Antara, it is
yet to reflect significant upsides from higher field force expansion undertaken over last
12 months.
We believe future line extensions, with expected approval of pediatric drops (review
process has been accelerated), should ring fence Suprax franchise, while new product
introductions (expect launch of Allernaze by end CY11) would likely ramp-up branded
business in the medium term. We forecast branded sales of USD 159 mn of sales in
FY12E versus USD 127 mn in FY10.
US generics grew 31% Y-o-Y, to INR 3.5 bn (above our estimate of INR 3.3 bn), despite
low rate of approvals. The company has 137 cumulative ANDA filings and 47 pending
approvals, and expects to file 25-30 ANDAs per annum. We believe US generics business’
double-digit growth over the past 2-3 quarters (largely driven by Lotrel on the back of
large pending pipeline) could see some downside risk from price erosions in Lotrel with
entry of other players (5-6 player market post recent launch by Parr) and slower rate of
approvals. LPC, however, expects approvals to accelerate in FY12 (~12 launches) with
likely 60-65 approvals over FY13. These approvals include niche products like 3-4 OCs
(USD 300-500 mn at innovator prices), Levofloxacin, Fortamet etc. in FY12. We believe
this interesting phase of key launches on the back of OC portfolio as well as FTF pipeline
will drive long-term growth for the company.
Ex-US, revenue grew 21% Y-o-Y and has been higher than our expectation of 16% Y-o-Y
growth, led by higher growth in APIs, Europe, South Africa and Japan. API sales grew
19% Y-o-Y, to INR 2.27 bn, 15% above estimates. Growth in domestic business has
been slower than our expectation (16% Y-o-Y to INR 4 bn versus our estimate of 4.1 bn;
19% Y-o-Y) and is lower than the overall historical CAGR of 24-25%. The management
expects higher field force and introduction of niche products, including biosimilars, to
drive higher growth in the medium term. EU surprised positively with 72% Y-o-Y growth,
to INR 655 mn (versus estimate of INR 400 mn), led by new products such as
Trimetazidine, Clarithromycin XL, etc, where LPC was the first to get approval.
High base effect of Lotrel could impact operating performance
Lotrel contributed ~USD 15-17 mn to revenues per quarter since its launch in Q4FY10
(EBIDTA margins of 65-70%). With significant price erosion (60-70%) post launch from
other players (now 5-6 players from 3 in Q4FY10), we believe LPC’s margins in US
generics are likely to remain under pressure for the next three quarters. Moreover, degrowth
in the branded segment in US could further impact margins, as business has
relatively high margins than generics. We do not foresee any material launches in the US
market for the next 2-3 quarters which could potentially trigger earnings downgrade. We
have revised our earnings estimate downwards by 3% and 8% to INR 19 and INR 23 for
FY11E and FY12E, respectively. The earnings downgrade would have been higher in
FY11E, had the company not revised tax guidance lower from 15% to 11-12% of PBT.
We are also introducing FY13 numbers with an EPS of INR 27.
Outlook and valuations: Long-term play; Maintain ‘BUY’
We believe LPC’s strong execution and large pending US pipeline (65-70 ANDA approvals
expected in next 2-3 years against a current portfolio of 28 products) with differentiated
products give visibility for growth over FY13-14E. However, in the short term we could
see some downside from price erosion in Lotrel and concerns in branded formulations.
The stock has corrected more than 11% in the past two days because of below expected
performance. We believe any further correction in the price should be used as a buying
opportunity. We maintain ‘TP/BUY’ on LPC.
Company Description
Promoted by Dr. Desh Bandhu Gupta, a first generation entrepreneur, LPC is India’s fifth
largest company by domestic sales. LPC’s revenues and profits (ex IP related revenues)
have posted 29% and 40% CAGR in FY06-10, to INR 49 bn and INR 6.8 bn in FY10,
respectively. LPC’s domestic formulations contribute 28% to total FY10 revenues and
have posted 22% CAGR in FY06-10, to INR 13.3 bn in FY10. With a market share of
~2.8%, LPC is the tenth largest player in the domestic market with six products in the
top 300 pharma brands in the country. LPC’s export sales have posted 39% CAGR during
FY06-10, growing to INR 32 bn in FY10. US formulations contributed 35% to total sales,
with Japan and Europe formulations contributing 14% to FY10 sales.
Investment Theme
We expect LPC’s total sales to grow at 16% CAGR between FY10-12E primarily led by
domestic formulation growth of 18% Y-o-Y. US is expected to grow at 14% CAGR. We
expect robust sales growth in US generics business primarily exclusive product launches
(expect to launch 70 products over next 3-4 years. Net profits are expected to grow at
22% CAGR in FY10-12E to INR 10.2 bn in FY12. LPC’s regulated branded formulation
play reduces volatility in US operations while Kyowa acquisition provides it a strategic
foothold in crucial Japanese market. Management expects to target potential acquisition
opportunities in high growth emerging markets like Brazil and Mexico which will give kick
start to non regulated markets sales and also would continue to look for potential brand
acquisitions in US branded formulation space. We have not built in any upsides from
these potential acquisitions.
Key Risks
Lack of new approvals, delay in approvals
The pace of new product approvals slowed since FY10. Despite such low success rates in
approvals, the company has managed to deliver 53% growth in Q2 FY11, but highly
dependent on performance of Lotrel. While LPC has a healthy pipeline of ANDAs pending,
a delay in approvals could hurt the US generics sales in F12. We also highlight that we
have neither built in any PIV related upsides nor any settlement based upsides in our
estimates for FY11-12E, due to uncertainty in timing of approval and launch.
Slowdown in domestic formulation market
Domestic market constitutes 28% of FY10 sales and has a higher impact on overall
profits. We have estimated domestic formulation CAGR of 19% in FY10-12E. Slowdown
in the domestic market could have a disproportionate impact on profits.
Price reductions in Kyowa
As per the company, Kyowa is expected to grow at 11-13% in FY11/12E, despite a
mandated price cut of 15-16% in LPC’s current portfolio in Japan. We highlight that
Kyowa contributes 11% of total revenues and any shortfall in sales could have an impact
on overall sales in FY11.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Earnings aided by lower tax and interest costs
Lupin’s (LPC) Q3FY11 results were below estimates. EBITDA, of INR 2.97 bn,
was 3% below estimate of INR 3.1 bn. EBITDA margins, of 19.7%, declined
114bps Q-o-Q and 90bps Y-o-Y, led by increase in R&D costs, forex loss of INR
170 mn and higher other fixed overheads (primarily from commissioning of
Indore SEZ). Revenue of INR 15.1 bn grew 19% Y-o-Y, in line with our estimate,
largely aided by higher other operating income of INR 430 mn (180% Y-o-Y).
PAT of INR 2.24 bn was higher than our estimate of INR 2.08 bn, benefiting from
lower tax (9% versus estimated 18%) and interest costs (-28% Y-o-Y).
Sharp decline in US branded sales: A key negative
US sales of INR 5 bn (10% Y-o-Y; 6% below estimates) had negative impact
from de-growth in branded business (-22% Y-o-Y). This miss was led by higher
base in Q3FY10 (from channel stocking in Antara and H1N1 led demand for
Suprax) and changes in accounting policy. Adjusting for the above, growth has
been 4-5% Y-o-Y. While LPC indicates positive secondary trends in Suprax
franchise (suspension 15% Y-o-Y and tablet 72% Y-o-Y) and pick up in Antara,
we believe it is yet to reflect in the numbers. US generics grew 31% Y-o-Y, to
INR 3.5 bn (above our estimates), despite slow rate of approvals. Ex-US, sales
grew 21% Y-o-Y, led by higher growth in API (19% Y-o-Y), Europe (72% Y-o-Y)
and other ROW markets (36% Y-o-Y).
High base effect of Lotrel could impact operating performance
Lotrel contributed ~USD 13-15 mn revenue per quarter since its launch in Q4
FY10 (EBIDTA margins of 65-70%). With significant price erosion (60-70%) post
launch from other players (now 5-6 players from 3 in Q4FY10), we expect LPC
margins in the US generics to remain under pressure for the next three quarters.
Moreover, de-growth in the branded segment in the US could further impact
margins, as business has relatively high margins than generics.
Outlook and valuations: Long-term play; maintain ‘BUY’
We are positive on the long-term growth of the company, however, we expect
pressure on earnings in the next 2-3 quarters given higher base effect of Lotrel
and concerns in branded formulation. We are revising down our earnings by 3%
for FY11E and 8% for FY12E and introduce our FY13 numbers with EPS of INR
27. The stock has corrected more than 11% in the past two days. We believe
any further correction in the price should be used as a buying opportunity. We
maintain our ‘BUY’ rating on stock.
Earnings aided by lower tax and interest costs
LPC’s Q3FY11 results were below estimates. Despite in line revenue growth and higher
gross margins, operating margin declined 100bps Y-o-Y due to higher employee costs,
increased expenditure on R&D and operational forex losses, partly offset by higher
dossier income.
Revenue of INR 15.1 bn grew 19% Y-o-Y, in line with our estimates, aided by higher
other operating income of INR 430 mn (180% Y-o-Y). US sales growth was subdued and
grew 10% Y-o-Y versus 16% estimated, largely due to de-growth in branded formulation
business (-22% Y-o-Y) which has been the key negative.
EBITDA, at INR 2.97 bn, grew 14% Y-o-Y (versus our estimate of INR 3.1 bn) and was
partly aided by higher other operating income. Adjusted for other operating income,
EBITDA of INR 2.54 bn was 9% below our estimate of INR 2.8 bn. EBITDA margins, of
19.7%, declined 114bps Q-o-Q and 90bps Y-o-Y, led by increase in R&D expenses (7.8%
of sales versus 7.4% in Q3FY10), forex loss of INR 170 mn (not factored in our estimate)
and higher other fixed overheads (employee and S,G&A costs, primarily from
commissioning of Indore SEZ). However, the company expects margins to improve in
Q4FY11 and guided for 70-75bps expansion in FY11.
PAT of INR 2.24 bn was higher than our estimate of INR 2.08 bn, benefiting from lower
tax (9% versus estimated 18%) and interest costs (-28% Y-o-Y). LPC has given tax
guidance of 11-12% for FY11 (versus earlier guidance of 13.0-13.5%).
Sharp decline in US branded sales: Key negative
US sales grew 10% Y-o-Y, to INR 5 bn, 6% below our estimates. US branded
formulations sales declined 22% Y-o-Y, to INR 1.45 bn, in a seasonally strong quarter,
largely impacted by higher base in Q3FY10 (from channel stocking in Antara and H1N1
led higher demand for Suprax) and changes in accounting policy for revenue recognition.
Adjusting for the above, revenue growth has been 4-5% Y-o-Y, which is a cause for
concern given higher margins of the business versus generics. The branded sales have
also been impacted from lean inventory at distributor end (one week from earlier 3-4
weeks). While, management believes inventory will pick-up in the channel, and sees
positive secondary trends in terms of higher prescription growth in Suprax franchise
(suspension 15% Y-o-Y and tablet 72% Y-o-Y) and pick up in demand for Antara, it is
yet to reflect significant upsides from higher field force expansion undertaken over last
12 months.
We believe future line extensions, with expected approval of pediatric drops (review
process has been accelerated), should ring fence Suprax franchise, while new product
introductions (expect launch of Allernaze by end CY11) would likely ramp-up branded
business in the medium term. We forecast branded sales of USD 159 mn of sales in
FY12E versus USD 127 mn in FY10.
US generics grew 31% Y-o-Y, to INR 3.5 bn (above our estimate of INR 3.3 bn), despite
low rate of approvals. The company has 137 cumulative ANDA filings and 47 pending
approvals, and expects to file 25-30 ANDAs per annum. We believe US generics business’
double-digit growth over the past 2-3 quarters (largely driven by Lotrel on the back of
large pending pipeline) could see some downside risk from price erosions in Lotrel with
entry of other players (5-6 player market post recent launch by Parr) and slower rate of
approvals. LPC, however, expects approvals to accelerate in FY12 (~12 launches) with
likely 60-65 approvals over FY13. These approvals include niche products like 3-4 OCs
(USD 300-500 mn at innovator prices), Levofloxacin, Fortamet etc. in FY12. We believe
this interesting phase of key launches on the back of OC portfolio as well as FTF pipeline
will drive long-term growth for the company.
Ex-US, revenue grew 21% Y-o-Y and has been higher than our expectation of 16% Y-o-Y
growth, led by higher growth in APIs, Europe, South Africa and Japan. API sales grew
19% Y-o-Y, to INR 2.27 bn, 15% above estimates. Growth in domestic business has
been slower than our expectation (16% Y-o-Y to INR 4 bn versus our estimate of 4.1 bn;
19% Y-o-Y) and is lower than the overall historical CAGR of 24-25%. The management
expects higher field force and introduction of niche products, including biosimilars, to
drive higher growth in the medium term. EU surprised positively with 72% Y-o-Y growth,
to INR 655 mn (versus estimate of INR 400 mn), led by new products such as
Trimetazidine, Clarithromycin XL, etc, where LPC was the first to get approval.
High base effect of Lotrel could impact operating performance
Lotrel contributed ~USD 15-17 mn to revenues per quarter since its launch in Q4FY10
(EBIDTA margins of 65-70%). With significant price erosion (60-70%) post launch from
other players (now 5-6 players from 3 in Q4FY10), we believe LPC’s margins in US
generics are likely to remain under pressure for the next three quarters. Moreover, degrowth
in the branded segment in US could further impact margins, as business has
relatively high margins than generics. We do not foresee any material launches in the US
market for the next 2-3 quarters which could potentially trigger earnings downgrade. We
have revised our earnings estimate downwards by 3% and 8% to INR 19 and INR 23 for
FY11E and FY12E, respectively. The earnings downgrade would have been higher in
FY11E, had the company not revised tax guidance lower from 15% to 11-12% of PBT.
We are also introducing FY13 numbers with an EPS of INR 27.
Outlook and valuations: Long-term play; Maintain ‘BUY’
We believe LPC’s strong execution and large pending US pipeline (65-70 ANDA approvals
expected in next 2-3 years against a current portfolio of 28 products) with differentiated
products give visibility for growth over FY13-14E. However, in the short term we could
see some downside from price erosion in Lotrel and concerns in branded formulations.
The stock has corrected more than 11% in the past two days because of below expected
performance. We believe any further correction in the price should be used as a buying
opportunity. We maintain ‘TP/BUY’ on LPC.
Company Description
Promoted by Dr. Desh Bandhu Gupta, a first generation entrepreneur, LPC is India’s fifth
largest company by domestic sales. LPC’s revenues and profits (ex IP related revenues)
have posted 29% and 40% CAGR in FY06-10, to INR 49 bn and INR 6.8 bn in FY10,
respectively. LPC’s domestic formulations contribute 28% to total FY10 revenues and
have posted 22% CAGR in FY06-10, to INR 13.3 bn in FY10. With a market share of
~2.8%, LPC is the tenth largest player in the domestic market with six products in the
top 300 pharma brands in the country. LPC’s export sales have posted 39% CAGR during
FY06-10, growing to INR 32 bn in FY10. US formulations contributed 35% to total sales,
with Japan and Europe formulations contributing 14% to FY10 sales.
Investment Theme
We expect LPC’s total sales to grow at 16% CAGR between FY10-12E primarily led by
domestic formulation growth of 18% Y-o-Y. US is expected to grow at 14% CAGR. We
expect robust sales growth in US generics business primarily exclusive product launches
(expect to launch 70 products over next 3-4 years. Net profits are expected to grow at
22% CAGR in FY10-12E to INR 10.2 bn in FY12. LPC’s regulated branded formulation
play reduces volatility in US operations while Kyowa acquisition provides it a strategic
foothold in crucial Japanese market. Management expects to target potential acquisition
opportunities in high growth emerging markets like Brazil and Mexico which will give kick
start to non regulated markets sales and also would continue to look for potential brand
acquisitions in US branded formulation space. We have not built in any upsides from
these potential acquisitions.
Key Risks
Lack of new approvals, delay in approvals
The pace of new product approvals slowed since FY10. Despite such low success rates in
approvals, the company has managed to deliver 53% growth in Q2 FY11, but highly
dependent on performance of Lotrel. While LPC has a healthy pipeline of ANDAs pending,
a delay in approvals could hurt the US generics sales in F12. We also highlight that we
have neither built in any PIV related upsides nor any settlement based upsides in our
estimates for FY11-12E, due to uncertainty in timing of approval and launch.
Slowdown in domestic formulation market
Domestic market constitutes 28% of FY10 sales and has a higher impact on overall
profits. We have estimated domestic formulation CAGR of 19% in FY10-12E. Slowdown
in the domestic market could have a disproportionate impact on profits.
Price reductions in Kyowa
As per the company, Kyowa is expected to grow at 11-13% in FY11/12E, despite a
mandated price cut of 15-16% in LPC’s current portfolio in Japan. We highlight that
Kyowa contributes 11% of total revenues and any shortfall in sales could have an impact
on overall sales in FY11.
No comments:
Post a Comment