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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lupin ------------------------------------------------------------------------------Maintain OUTPERFORM
Growth story still intact; stay the course
● We assume coverage of Lupin with an OUTPERFORM rating and
target price of Rs500 (from Rs520 earlier).
● Forward multiples for Lupin have been impacted by weak 3Q11
results, delay in the launch of Allernaze and postponement of oral
contraceptive launch from Mar 11 to Sep 11. We believe these are
temporary setbacks and the overall growth story remains intact.
● Lupin’s strong franchise in India and the US should ensure a
strong EBITDA CAGR of 25% over the next two years. In the
interim, Lupin continues to strengthen its presence in the
emerging markets, which should be a significant contributor to
growth beyond FY13. Management’s measured and successful
strategy in these markets has been comforting so far.
● We value Lupin at 21x FY12E earnings (sector average multiple)
to arrive at our target price of Rs500 (includes Rs9/share from the
FTF pipeline). We reduce FY12 estimates as we now build in a
slower ramp up of branded portfolio in the US after the
prescription growth for Antara has been slower-than-expected and
launch of Allernaze has been pushed out
US and India ensure near-term growth
Our analysis of incremental EBITDA growth for Lupin suggests India
and the US remain the key markets driving EBITDA growth for Lupin.
As profitability of US operations is expected to pick up materially with
sales increase of Antara and the launch of the high-margin oral
contraceptive portfolio, US operations are going to be the key growth
driver of profitability. Margins in Japan should pick up in late FY12 and
FY13, as manufacturing of some bigger products moves to India.
Medium-term growth more diversified
Lupin has the reputation of being very cautious and successful with its
acquisitions. In the EMs, Lupin has followed a strategy of building a
small initial presence to understand the regulations and dynamics of
the market and then scaling up significantly once it is convinced about
the market potential. Currently, Lupin is evaluating mid-size targets in
Brazil and Mexico (looking to spend US$50 mn), and also evaluating
Turkey for entry via an acquisition. Further, Lupin is looking to enter
the specialty oncology and central nervous system segments in Japan
With improved cash flow, Lupin’s balance sheet now permits it to aim
for these acquisitions. However, Latin America has not been an easy
market for several Indian pharmaceuticals companies. For instance,
Glenmark is still close to breaking even and Dr. Reddy’s has pulled
out of the Brazilian market and sold its registered products to GSK.
Thus, we do not expect a significant contribution from the Latin
American operations in the near term, but these would further support
the high growth coming from the US market.
Maintain OUTPERFORM; target price of Rs500
Forward multiples for Lupin have been impacted by three recent
disappointments: (1) the delay in the launch of Allernaze, (2) weak
margins in 3Q11 and (3) the postponement of the OC launch from
March 2011 to September 2011. However, we see all these as
temporary setbacks. We value Lupin at 21x FY12E earnings (sector
average multiple) to arrive at our target price of Rs500 (includes
Rs9/share from the FTF pipeline).
Oral contraceptives: FDA timely approval + execution =
Rs 60/share upside
Oral contraceptives represent a sustained opportunity for Lupin where
margins should be about 80%, as Lupin is vertically integrated. We
assume a 15% market share for Lupin and 60% price erosion. As
there could be execution issues and delay in obtaining FDA approval,
we are not valuing it currently. Given Lupin’s track record, we believe
our market share assumption may have upsides
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lupin ------------------------------------------------------------------------------Maintain OUTPERFORM
Growth story still intact; stay the course
● We assume coverage of Lupin with an OUTPERFORM rating and
target price of Rs500 (from Rs520 earlier).
● Forward multiples for Lupin have been impacted by weak 3Q11
results, delay in the launch of Allernaze and postponement of oral
contraceptive launch from Mar 11 to Sep 11. We believe these are
temporary setbacks and the overall growth story remains intact.
● Lupin’s strong franchise in India and the US should ensure a
strong EBITDA CAGR of 25% over the next two years. In the
interim, Lupin continues to strengthen its presence in the
emerging markets, which should be a significant contributor to
growth beyond FY13. Management’s measured and successful
strategy in these markets has been comforting so far.
● We value Lupin at 21x FY12E earnings (sector average multiple)
to arrive at our target price of Rs500 (includes Rs9/share from the
FTF pipeline). We reduce FY12 estimates as we now build in a
slower ramp up of branded portfolio in the US after the
prescription growth for Antara has been slower-than-expected and
launch of Allernaze has been pushed out
US and India ensure near-term growth
Our analysis of incremental EBITDA growth for Lupin suggests India
and the US remain the key markets driving EBITDA growth for Lupin.
As profitability of US operations is expected to pick up materially with
sales increase of Antara and the launch of the high-margin oral
contraceptive portfolio, US operations are going to be the key growth
driver of profitability. Margins in Japan should pick up in late FY12 and
FY13, as manufacturing of some bigger products moves to India.
Medium-term growth more diversified
Lupin has the reputation of being very cautious and successful with its
acquisitions. In the EMs, Lupin has followed a strategy of building a
small initial presence to understand the regulations and dynamics of
the market and then scaling up significantly once it is convinced about
the market potential. Currently, Lupin is evaluating mid-size targets in
Brazil and Mexico (looking to spend US$50 mn), and also evaluating
Turkey for entry via an acquisition. Further, Lupin is looking to enter
the specialty oncology and central nervous system segments in Japan
With improved cash flow, Lupin’s balance sheet now permits it to aim
for these acquisitions. However, Latin America has not been an easy
market for several Indian pharmaceuticals companies. For instance,
Glenmark is still close to breaking even and Dr. Reddy’s has pulled
out of the Brazilian market and sold its registered products to GSK.
Thus, we do not expect a significant contribution from the Latin
American operations in the near term, but these would further support
the high growth coming from the US market.
Maintain OUTPERFORM; target price of Rs500
Forward multiples for Lupin have been impacted by three recent
disappointments: (1) the delay in the launch of Allernaze, (2) weak
margins in 3Q11 and (3) the postponement of the OC launch from
March 2011 to September 2011. However, we see all these as
temporary setbacks. We value Lupin at 21x FY12E earnings (sector
average multiple) to arrive at our target price of Rs500 (includes
Rs9/share from the FTF pipeline).
Oral contraceptives: FDA timely approval + execution =
Rs 60/share upside
Oral contraceptives represent a sustained opportunity for Lupin where
margins should be about 80%, as Lupin is vertically integrated. We
assume a 15% market share for Lupin and 60% price erosion. As
there could be execution issues and delay in obtaining FDA approval,
we are not valuing it currently. Given Lupin’s track record, we believe
our market share assumption may have upsides
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