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Lupin’s Q3FY11 results were kind of a mixed bag. Net sales grew 16.9%
YoY to | 1467.2 crore, slightly below our expectation of | 1482 crore
mainly on the back of lower growth in its US business. EBITDA margins
declined 90 bps to 19.7%. This was on the back of an increase in R&D
cost, forex loss of | 17 crore and rise in employee expenses due to new
recruitment at the Indore SEZ and also due to addition of ~160 medical
representatives. However, net profit was up 39.5% to | 224.1 crore,
above our expectation of | 200 crore on the back of lower tax provision.
As the growth prospects of the company still remain intact, we
maintain our rating of STRONG BUY on the stock.
ƒ Highlights of quarter
Lupin filed five ANDAs with the USFDA during the quarter. R&D cost was
higher at 8% (percentage of sales) as against 7.5% in Q3FY10 due to an
increase spending on bio-similar, ophthalmic and asthma segments.
Lupin clocked 16.2% growth in the domestic formulation business to |
400 crore. Sales from the Australia markets registered AU$100 million. Its
wholly-owned subsidiaries, Kyowa Pharmaceuticals (Japan) and Pharma
Dynamics (South Africa) clocked sales growth of 16% and 42% to | 172.7
crore and | 49.8 crore, respectively.
Valuation
Lupin continues to deliver strong numbers although Q3 was in fact muted
in terms of US growth vis-à-vis previous quarters. We believe the
company remains on the high growth trajectory despite these slides in
either geography as was visible from good growth registered ex-US. The
new launches in the US will, however, hold the key as far as margins are
concerned. Lupin is currently trading at 15x FY13E EPS of | 27.9. We
maintain our stance on Lupin that the company justifies a higher multiple
on account of its performance in the US generic and branded space,
performance in other geographies including India, superior working
capital capabilities and management vision. We have valued the stock at
19x FY13E EPS of | 27.9, i.e. | 530. Hence, we maintain STRONG BUY.
Sales grow 16.9% YoY
Lupin’s net sales grew 16.9% YoY to | 1467.2 crore slightly below our
expectation of | 1482 crore due to lower growth in its US business. The
total formulation business increased 16.5% YoY to | 1239.9 crore while
the API business was up 19% to | 227.3 crore. Despite SeptemberDecember being a traditionally weak quarter for the pharma industry,
Lupin clocked 16.2% growth in the domestic formulation business at |
400 crore.
Sales from the US and EU markets increased 14.5% to | 565.5 crore due
to lower sales growth (~10%) in the US markets. The US branded
business (which constitutes 30-35% of the total US business) witnessed
de-growth on the back of higher base in Q3FY10 due to (i) better than
expected sales of Antara (anti-cholesterol) due to initial launch (ii) inflated
Suprax (antibiotic) sales boosted on account of H1N1 fears (iii) change in
accounting policy of rebates & (iv) sharp reduction in inventory levels.
Antara sales have started picking up from Q2FY11 onwards. In the current
quarter, it has also started gaining market share. Overall Suprax
prescriptions are growing at 18-19%, with suspensions growing at 15%
and tablets growing at 22%.
With the implementation of new healthcare reforms in the US, the
companies need to provide rebate of 10% on all branded products. Till
FY10, Lupin accounted for rebates provided on Antara and Suprax in
expenditure while now it has changed its accounting treatment by netting
rebates from sales directly.
Inventory levels of these two branded products declined to five days
compared to the regular trend of three or four weeks. The company
expects inventory levels to be normalised in due course.
It has filed five ANDAs taking total cumulative filings as of Q3FY11 to 137
ANDAs, of which 47 have been approved by the USFDA. For 13 of its 29
products launched in the US, Lupin enjoys highest market share. It is
planning to launch 12 products (three or four OCs) in the US markets and
file 25 ANDAs in FY12. Lupin remains among the top five fastest growing
generic companies in the US.
The EU business grew 72% driven by new products launches in the
France market. Total dossier filings to EU authorities stands at 86 with the
approval count at 38 so far. Lupin’s Japanese subsidiary Kyowa
pharmaceuticals grew 16% during the quarter registering sales of | 172.7
crore. It launched three products in 9MFY11 and plans to launch three or
four products in Q4FY11. It expects to maintain five or six product
launches every year for the Japanese market.
Sales from Australia markets registered AU$100 million during the
quarter. Currently, it is marketing three branded (IP related) and several
in-licensed products in the market.
Other operating income during the quarter was | 43 crore, up 184% YoY
due to higher dossier sales and export incentives. Overall total income
from operations grew 18.9% to | 1510.2 crore.
ƒ Lower tax provision boosts growth in profits
Net profit was higher by 39.5% to | 224.1 crore as against our expectation
of | 200 crore as the company made lower provision for taxation (9.4% of
PBT as against 23.4% in Q3FY11).
Valuation
Lupin has a strong presence in the US market in both the branded as well
as the generic space. As Both Antara and Suprax sales are picking up, we
believe de-growth in the branded business will normalise in due course.
Similarly, the launch of Allernase in FY12 will boost branded business
sales further. On the generics front, the company is planning to launch 10-
12 products. It is planning to file around 60 ANDAs with the USFDA in the
next three or four years. Lupin is an early entrant in the Japanese generic
market. The company is planning to launch five or six products ever year
in this market. It is planning to shift the API requirement for the Japanese
market to India in FY12 and complete manufacturing activities for
formulation in FY13, which will improve margins.
Lupin is currently trading at | 420, i.e. 17.5x of FY13E EPS of | 24 and 15x
of FY13E EPS of | 27.9. We expect sales, EBITDA and profits to grow at a
CAGR of 20%, 22% and 22%, respectively between FY10 and FY13E. We
have maintained our stance on Lupin that the company justifies higher
multiple on account of its performance in the US generic and branded
space, performance in other geographies, including India, superior
working capital capabilities and management vision. We have valued the
stock at 19x FY13E EPS of | 27.9, i.e. | 530. Hence, we have maintained
our STRONG BUY rating on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lupin’s Q3FY11 results were kind of a mixed bag. Net sales grew 16.9%
YoY to | 1467.2 crore, slightly below our expectation of | 1482 crore
mainly on the back of lower growth in its US business. EBITDA margins
declined 90 bps to 19.7%. This was on the back of an increase in R&D
cost, forex loss of | 17 crore and rise in employee expenses due to new
recruitment at the Indore SEZ and also due to addition of ~160 medical
representatives. However, net profit was up 39.5% to | 224.1 crore,
above our expectation of | 200 crore on the back of lower tax provision.
As the growth prospects of the company still remain intact, we
maintain our rating of STRONG BUY on the stock.
ƒ Highlights of quarter
Lupin filed five ANDAs with the USFDA during the quarter. R&D cost was
higher at 8% (percentage of sales) as against 7.5% in Q3FY10 due to an
increase spending on bio-similar, ophthalmic and asthma segments.
Lupin clocked 16.2% growth in the domestic formulation business to |
400 crore. Sales from the Australia markets registered AU$100 million. Its
wholly-owned subsidiaries, Kyowa Pharmaceuticals (Japan) and Pharma
Dynamics (South Africa) clocked sales growth of 16% and 42% to | 172.7
crore and | 49.8 crore, respectively.
Valuation
Lupin continues to deliver strong numbers although Q3 was in fact muted
in terms of US growth vis-à-vis previous quarters. We believe the
company remains on the high growth trajectory despite these slides in
either geography as was visible from good growth registered ex-US. The
new launches in the US will, however, hold the key as far as margins are
concerned. Lupin is currently trading at 15x FY13E EPS of | 27.9. We
maintain our stance on Lupin that the company justifies a higher multiple
on account of its performance in the US generic and branded space,
performance in other geographies including India, superior working
capital capabilities and management vision. We have valued the stock at
19x FY13E EPS of | 27.9, i.e. | 530. Hence, we maintain STRONG BUY.
Sales grow 16.9% YoY
Lupin’s net sales grew 16.9% YoY to | 1467.2 crore slightly below our
expectation of | 1482 crore due to lower growth in its US business. The
total formulation business increased 16.5% YoY to | 1239.9 crore while
the API business was up 19% to | 227.3 crore. Despite SeptemberDecember being a traditionally weak quarter for the pharma industry,
Lupin clocked 16.2% growth in the domestic formulation business at |
400 crore.
Sales from the US and EU markets increased 14.5% to | 565.5 crore due
to lower sales growth (~10%) in the US markets. The US branded
business (which constitutes 30-35% of the total US business) witnessed
de-growth on the back of higher base in Q3FY10 due to (i) better than
expected sales of Antara (anti-cholesterol) due to initial launch (ii) inflated
Suprax (antibiotic) sales boosted on account of H1N1 fears (iii) change in
accounting policy of rebates & (iv) sharp reduction in inventory levels.
Antara sales have started picking up from Q2FY11 onwards. In the current
quarter, it has also started gaining market share. Overall Suprax
prescriptions are growing at 18-19%, with suspensions growing at 15%
and tablets growing at 22%.
With the implementation of new healthcare reforms in the US, the
companies need to provide rebate of 10% on all branded products. Till
FY10, Lupin accounted for rebates provided on Antara and Suprax in
expenditure while now it has changed its accounting treatment by netting
rebates from sales directly.
Inventory levels of these two branded products declined to five days
compared to the regular trend of three or four weeks. The company
expects inventory levels to be normalised in due course.
It has filed five ANDAs taking total cumulative filings as of Q3FY11 to 137
ANDAs, of which 47 have been approved by the USFDA. For 13 of its 29
products launched in the US, Lupin enjoys highest market share. It is
planning to launch 12 products (three or four OCs) in the US markets and
file 25 ANDAs in FY12. Lupin remains among the top five fastest growing
generic companies in the US.
The EU business grew 72% driven by new products launches in the
France market. Total dossier filings to EU authorities stands at 86 with the
approval count at 38 so far. Lupin’s Japanese subsidiary Kyowa
pharmaceuticals grew 16% during the quarter registering sales of | 172.7
crore. It launched three products in 9MFY11 and plans to launch three or
four products in Q4FY11. It expects to maintain five or six product
launches every year for the Japanese market.
Sales from Australia markets registered AU$100 million during the
quarter. Currently, it is marketing three branded (IP related) and several
in-licensed products in the market.
Other operating income during the quarter was | 43 crore, up 184% YoY
due to higher dossier sales and export incentives. Overall total income
from operations grew 18.9% to | 1510.2 crore.
ƒ Lower tax provision boosts growth in profits
Net profit was higher by 39.5% to | 224.1 crore as against our expectation
of | 200 crore as the company made lower provision for taxation (9.4% of
PBT as against 23.4% in Q3FY11).
Valuation
Lupin has a strong presence in the US market in both the branded as well
as the generic space. As Both Antara and Suprax sales are picking up, we
believe de-growth in the branded business will normalise in due course.
Similarly, the launch of Allernase in FY12 will boost branded business
sales further. On the generics front, the company is planning to launch 10-
12 products. It is planning to file around 60 ANDAs with the USFDA in the
next three or four years. Lupin is an early entrant in the Japanese generic
market. The company is planning to launch five or six products ever year
in this market. It is planning to shift the API requirement for the Japanese
market to India in FY12 and complete manufacturing activities for
formulation in FY13, which will improve margins.
Lupin is currently trading at | 420, i.e. 17.5x of FY13E EPS of | 24 and 15x
of FY13E EPS of | 27.9. We expect sales, EBITDA and profits to grow at a
CAGR of 20%, 22% and 22%, respectively between FY10 and FY13E. We
have maintained our stance on Lupin that the company justifies higher
multiple on account of its performance in the US generic and branded
space, performance in other geographies, including India, superior
working capital capabilities and management vision. We have valued the
stock at 19x FY13E EPS of | 27.9, i.e. | 530. Hence, we have maintained
our STRONG BUY rating on the stock.
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