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Lupin's favourable business mix, with c75% of revenues from lucrative markets, augurs well for
growth. We acknowledge ongoing challenges – headwinds in its US brand business and pressure
on EBITDA margins – but we believe risk/reward is in Lupin's favour. We cut our target price to
Rs465; Buy on attractive valuation.
Favourable business mix should provide steady growth
We like Lupin’s favourable business mix, with the US, India and Japan accounting for 35%, 28%
and 11% of FY11F revenues, respectively. The company faced headwinds in the branded US
segment in 3QFY11, but we remain optimistic on its growth prospects. We expect: 1) the US
generics business to remain robust as 90 ANDAs await approval (second-largest list among its
peers); and 2) a deeper presence in the oral contraceptives segment, with three or four product
launches planned in FY12, targeting overall branded sales of US$300m-500m. Lupin’s domestic
formulations also look well placed, with a focus on chronic and lifestyle products. We expect
Lupin to launch female healthcare and ophthalmic products in the near term to augment its
product portfolio. Lupin has a significant presence in Japan via its subsidiary Kyowa and thus
could benefit from increased generic penetration expected after the recent tragic events in Japan.
Challenges remain, but we believe opportunities outweigh them
The significant decline in US brand business surprises us, but we take comfort from the strong
prescription trends in the US and management’s assurance that the revenue weakness was
primarily the result of non-operating issues. A delay in the AllerNaze launch and the weakening
EBITDA margin seen in 3QFY11 are concerns, but Lupin remains confident of its growth – it has
been strengthening its sales force in the US, believing that upside from Suprax will continue,
coupled with the launch of AllerNaze by 2Q-3Q FY12. The commissioning of the Indore facility is
likely to boost both revenues and margins.
Reduce TP 7% to Rs465; maintain Buy on sound business mix and valuations
We largely maintain our forecasts, but now value Lupin at a FY12F PE of 20.4x, at a 5% discount
to the sector (vs ‘at par’ valuation earlier) due to weakness in its US brand business, which has
been a key differentiator for the stock. This results in a 7% cut to our target price to Rs465. We
retain our Buy rating on Lupin’s sound business mix and attractive valuation.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lupin's favourable business mix, with c75% of revenues from lucrative markets, augurs well for
growth. We acknowledge ongoing challenges – headwinds in its US brand business and pressure
on EBITDA margins – but we believe risk/reward is in Lupin's favour. We cut our target price to
Rs465; Buy on attractive valuation.
Favourable business mix should provide steady growth
We like Lupin’s favourable business mix, with the US, India and Japan accounting for 35%, 28%
and 11% of FY11F revenues, respectively. The company faced headwinds in the branded US
segment in 3QFY11, but we remain optimistic on its growth prospects. We expect: 1) the US
generics business to remain robust as 90 ANDAs await approval (second-largest list among its
peers); and 2) a deeper presence in the oral contraceptives segment, with three or four product
launches planned in FY12, targeting overall branded sales of US$300m-500m. Lupin’s domestic
formulations also look well placed, with a focus on chronic and lifestyle products. We expect
Lupin to launch female healthcare and ophthalmic products in the near term to augment its
product portfolio. Lupin has a significant presence in Japan via its subsidiary Kyowa and thus
could benefit from increased generic penetration expected after the recent tragic events in Japan.
Challenges remain, but we believe opportunities outweigh them
The significant decline in US brand business surprises us, but we take comfort from the strong
prescription trends in the US and management’s assurance that the revenue weakness was
primarily the result of non-operating issues. A delay in the AllerNaze launch and the weakening
EBITDA margin seen in 3QFY11 are concerns, but Lupin remains confident of its growth – it has
been strengthening its sales force in the US, believing that upside from Suprax will continue,
coupled with the launch of AllerNaze by 2Q-3Q FY12. The commissioning of the Indore facility is
likely to boost both revenues and margins.
Reduce TP 7% to Rs465; maintain Buy on sound business mix and valuations
We largely maintain our forecasts, but now value Lupin at a FY12F PE of 20.4x, at a 5% discount
to the sector (vs ‘at par’ valuation earlier) due to weakness in its US brand business, which has
been a key differentiator for the stock. This results in a 7% cut to our target price to Rs465. We
retain our Buy rating on Lupin’s sound business mix and attractive valuation.
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