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While 3QFY11 revenues and earnings were largely in line, US revenue growth of only 10% and
EBITDA margin contraction of 230bps yoy (despite gross margin expansion of 195bps yoy) were
key disappointments. While EBITDA growth was muted at 3% (vs. 17% revenue growth), lower
tax rate resulted in an in line PAT.
Revenues largely in-line (though weak US growth could be a concern)
Lupin reported 3QFY11 revenues of Rs14.7bn (+17% yoy) which was marginally lower than
our estimate by 3%. While 3Q revenues in US (34% of 9MFY11 revenues) witnessed weak
growth of 10% yoy, we highlight that it grew by 30% yoy for 9mFY11 (due to 45% growth in
1HFY11) - which is ahead of our assumption of 25% for FY11F. However if weak growth
continues in US, we would be concerned as US has been its key growth driver. There also
has been a marginal slowdown in its domestic formulation business (30%) which increased by
16% yoy respectively as compared to 22% in 1HFY11. Kyowa/Japan (11%) growth of 16%
and other emerging market formulations (8%) growth of 32% were largely in-line while API
(14%) growth of 19% was marginally ahead of our estimates.
Despite an in-line PAT, margin pressure disappoints
While gross profit margin expansion of 195bps yoy to 61.2% was comforting,
EBITDA margin contraction of 230bps yoy was disappointing. As against the revenue
growth of 17%, staff and SG&A expense increased 29% and 31% respectively. While we
were anticipating increase in these expense heads due to management's earlier indications of
expanding branded sales field force in US and increasing marketing spend, the actual
quantum of increase still managed to surprise us on the higher side. Higher other income
(Rs464m, +199% yoy) and lower tax rate of 9.4% (vs. 23.4% in 3QFY10) resulted in PAT
growth of 39% (vs. EBITDA growth of 3%). Therefore, while PAT of Rs2.2bn (EPS of Rs5)
was in-line with consensus and our estimates, we would be more interested in how the
operating margin shapes up in the forthcoming quarters.
We maintain our forecasts, target price and Buy rating
We highlight that 9MFY11 has achieved 72% and 75% of our FY11 revenue and earnings
forecasts respectively. The company has improved its working capital management - net
operating working capital increased by only 13% as against sales increase of 21% in FY11
YTD. Similarly, debt equity ratio stands at 0.25x as of end-December 2010 as compared to
0.32x as of end-September 2010. We maintain our Buy rating and TP of Rs500 derived by
valuing its core business at Rs494/sh (21.9x FY12F) and one-off opportunities at Rs6/sh.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
While 3QFY11 revenues and earnings were largely in line, US revenue growth of only 10% and
EBITDA margin contraction of 230bps yoy (despite gross margin expansion of 195bps yoy) were
key disappointments. While EBITDA growth was muted at 3% (vs. 17% revenue growth), lower
tax rate resulted in an in line PAT.
Revenues largely in-line (though weak US growth could be a concern)
Lupin reported 3QFY11 revenues of Rs14.7bn (+17% yoy) which was marginally lower than
our estimate by 3%. While 3Q revenues in US (34% of 9MFY11 revenues) witnessed weak
growth of 10% yoy, we highlight that it grew by 30% yoy for 9mFY11 (due to 45% growth in
1HFY11) - which is ahead of our assumption of 25% for FY11F. However if weak growth
continues in US, we would be concerned as US has been its key growth driver. There also
has been a marginal slowdown in its domestic formulation business (30%) which increased by
16% yoy respectively as compared to 22% in 1HFY11. Kyowa/Japan (11%) growth of 16%
and other emerging market formulations (8%) growth of 32% were largely in-line while API
(14%) growth of 19% was marginally ahead of our estimates.
Despite an in-line PAT, margin pressure disappoints
While gross profit margin expansion of 195bps yoy to 61.2% was comforting,
EBITDA margin contraction of 230bps yoy was disappointing. As against the revenue
growth of 17%, staff and SG&A expense increased 29% and 31% respectively. While we
were anticipating increase in these expense heads due to management's earlier indications of
expanding branded sales field force in US and increasing marketing spend, the actual
quantum of increase still managed to surprise us on the higher side. Higher other income
(Rs464m, +199% yoy) and lower tax rate of 9.4% (vs. 23.4% in 3QFY10) resulted in PAT
growth of 39% (vs. EBITDA growth of 3%). Therefore, while PAT of Rs2.2bn (EPS of Rs5)
was in-line with consensus and our estimates, we would be more interested in how the
operating margin shapes up in the forthcoming quarters.
We maintain our forecasts, target price and Buy rating
We highlight that 9MFY11 has achieved 72% and 75% of our FY11 revenue and earnings
forecasts respectively. The company has improved its working capital management - net
operating working capital increased by only 13% as against sales increase of 21% in FY11
YTD. Similarly, debt equity ratio stands at 0.25x as of end-December 2010 as compared to
0.32x as of end-September 2010. We maintain our Buy rating and TP of Rs500 derived by
valuing its core business at Rs494/sh (21.9x FY12F) and one-off opportunities at Rs6/sh.
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