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LUPIN: BUY, TP-Rs537 (17% upside)
What’s the theme?
Lupin is one of the best plays in the pharma space, in our view, given its strong execution capabilities,
improving financial performance, and diversifying business model. The high-margin branded generic
business has been the key differentiator. Strong growth in the US (in both branded and generic segments)
and improvement in operating margins would lead to upgrade in consensus earnings.
What will move the stock?
1) Strong traction for the high-margin Suprax product (chewable tablets approved; double strength tablets
now enjoy more than 50% of total Suprax prescription share) and gradual pick-up in Antara prescription.
2) Approval of less competitive OC products (generic market size of >US$ 1bn) in 2HFY12 and launch of
12-15 generic products (other than OC) in the next 12 months. 3) Commencement of API supplies from
the Goa facility to Kyowa boosting margins. 4) A strong balance sheet aiding inorganic growth opportunities
(Latam market, US branded generics the key target segments).
Where are we stacked versus consensus?
Our FY12 estimates are higher than consensus. We expect net sales and earnings CAGR of 20.6% and
26.2% to Rs 68,956mn and Rs24.4 respectively over FY10-12. We value Lupin at 22x FY12E earnings (in
line with sector biggies), which yields a target price of Rs537.
What will challenge our target price?
1) Earlier-than-expected competition in Suprax; and 2) Further delay in OC generic product approvals.
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