Goldman Sachs:: Lupin : Steady fundamentals; reiterate Buy; raise TP

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Lupin (LUPN.BO): Steady fundamentals; reiterate Buy; raise TP
Source of opportunity
 We reiterate our Buy rating on Lupin with a revised 12-month target
price of Rs463, implying 13% potential upside. We maintain our
thesis that Lupin is one the best positioned Indian pharma
companies on a long-term horizon due to its leading presence in the
key generics markets of US and Japan.

 Recent underperformance post 3Q provides entry point: Lupin is
down 14% since its 3Q results on Jan 27th, as revenue growth was
below 20% for the first time in the last 14 quarters. We believe that
the revenue decline is temporary and expect Lupin’s growth to
return to 20%+ levels in the upcoming quarters. We view the price
correction as an opportunity to enter the stock at attractive levels.
 Revenue and margin momentum to continue: We raise our net
income estimates by 1%-7% for FY11E-FY13E. We now forecast
Lupin to deliver strong revenue and earnings CAGR of 23%/26%
during FY11E-FY13E, driven by continued sales uptake and line
extension of existing drugs and new product launches. We also
expect Lupin’s margins to expand by 110 bps over FY11E-FY13E as
a result of vertical integration and declining contribution from APIs.
Catalysts:
 Attractive FTF pipeline with potential of more than US$430mn:
which addresses a total market size of US$11 bn with revenue
potential of around US$430mn over 2011-2014. Key launches:
Geodon, Cymbalta, Renvela.
 Generic OCs by 2H 2011: We remain positive on Lupin’s US sales,
driven mainly by growth in the marketed products of Lotrel, Antara
and Suprax. We also expect generic oral contraceptive (OC)
approvals to trickle in from mid FY12 and start making a material
contribution to Lupin’s FY2013E revenues. Refer our note dated
April 29, 2009: “Fresh focus on generic OCs supports our growth
thesis; Buy”
Valuation
 Our Director’s Cut-based 12-month target price of Rs463 (up from
Rs436.80 previously) on the back of our revised earnings, yields
13% potential upside from current levels. Our TP implies a P/E of
18.2X on FY12E P/E which represents a 17% premium to its peers.
 The stock is currently trading at 16.1X on FY12E P/E and 11.5X on
FY12E EV/EBITDA, representing a premium of 3%/2% to its peers.
 We continue to believe that Lupin is moving towards an industry
leadership position with consistent top-quartile CROCI returns,
which we expect will continue over the next few years.
Key risks
 Delay in FDA approvals, increased competition, lower sales.
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