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UBS Investment Research
Lupin Limited
Outlook strong despite branded weakness
Strong Buy in the current weakness
We believe current valuations provide a good opportunity to Buy into a great
franchise which has got derisked as US brands business becomes smaller. The
execution in the US generic business is top notch (clearly best in India) - a business
we would like to own going into a generic patent cliff. FY13 is likely to be a strong
year for Lupin with significant no. of O.C. launches and Ziprasidone exclusivity.
Salix deal, Allernaze and O.C. launches imply robust FY12 outlook
Salix deal will result in US$10mn upfront payment to Lupin, most of which is to
be recognized in FY12. Mgmt. has resolved packaging issues related to Allernaze
and expects to launch the product in the next 3-4 mths. We understand that FY12
O.C. launches are authorized generics and therefore add certainity to outlook.
Earnings outlook remains strong, M&A triggers remain
While we reduce our PT following minor cuts to our FY12/13 EPS on weaker US
branded business, the earnings growth outlook remains strong with 19% CAGR
from FY11-13. Mgmt. is looking at close couple of potential deals in the US
speciality space as well as in the ROW space in FY12. We believe this could
further boost earnings outlook and drive further share price performance.
Valuation: Maintain Buy, PT Rs 525 (from Rs 540)
We derive our price target using DCF-based methodology, explicitly forecasting
long-term valuation drivers with UBS’s VCAM tool and a WACC of 11%. At our
PT stock will trade at 19x FY13 P/E. Lupin and Ranbaxy are now our preferred
picks in the Indian Pharma space.
Outlook remains strong
We reiterate our Buy on Lupin as the current weakness in the stock price is
likely to be temporary. Lupin is likely to achieve our FY11 estimates despite
substantial shortfall in US speciality business. The strong execution in US
generics has fully offset the shortfall in US Speciality.
We believe the earnings growth outlook remains strong with 19%YoY
CAGR from FY11-FY13E. Mgmt. is targeting earnings growth CAGR of
25%YoY. The co. expect at least 40-45 US launches over the next 2 years,
which we believe will help drive strong growth in US generics business.
Our recent meeting with the mgmt. indicates that the mgmt is fairly focused
on M&A and expects to close a couple of deals in the ROW markets during
FY12 as well as potential deals in the US speciality space in the near term.
We therefore see upside risks to our FY12/13 estimates.
FY13 is likely to be a strong year for Lupin with significant no. of O.C.
launches and Ziprasidone co-exclusivity.
US generics – Strong execution
Lupin’s execution continues to remain strong, with co. continuing to maintain
high marketshare in majority of its product launches. We therefore see 2011-12
patent cliff as a significant opportunity for Lupin. Co. expects 40-45 launches
over the next 2 years.
Oral contraceptives remain a significant opportunity for the co. While the no. of
expected generic competitors have increased from 4-5 to 7-8, mgmt. believes the
opportunity remains meaningful. Mgmt. believes 1) a large product basket and
2) being backward integrated on API will be the key differentiators for the co.
and help it gain market share. Mgmt. expects revenues of up to US$150mn p.a.
as the full basket of products gets approved.
According to mgmt. the previously announced 3-4 O.C. launches for FY12 are
authorized generics and therefore not contingent on timing of FDA approval or
legal issues. This further boosts the growth outlook for US generics business in
FY12.
US Speciality – Acquisitions to boost business
Management continues to remain extremely committed to this business. The co.
is looking at a few potential brand acquisitions in the next few months to offset
the gap created due to underperformance of Antara and delay in Allernaze
launch. Mgmt. expects to launch Allernaze in the next 3-4 months as the
packaging issues have been sorted out.
We remain conservative on the US Speciality business, which while profitable
remains risky (threat of potential generic entrants).
Antara
While the mgmt. still believes that Antara TRx are turning the bottom, we see no
evidence of the same as yet. Also, it remains unclear if Antara will be impacted
by Tricor genericization (latest by Jul 1, 2012). It may happen sooner as generic
fenofibrate continues to gain market share rapidly. We believe it will be difficult
for Antara to escape this trend.
We therefore from a conservative standpoint project significant decline in
Antara sales going forward.
Suprax
With little imminent threat to Suprax, we believe Suprax revenues are likely to
continue in FY12/13. Also, sales being spread across multiple dosage forms is
likely to further make is tough for generic entrants to capture the whole market.
Mgmt. continues to work on Suprax ‘drops’ as the next dosage form to extend
the lifecycle and grow the brand.
Valuations
We derive our price target using DCF-based methodology, explicitly forecasting
long-term valuation drivers with UBS’s VCAM tool and a WACC of 11%. At
our price target, the stock will trade at 19x FY13 earnings. We project a 19%
EPS CAGR over FY11-FY13.
Lupin Limited
Incorporated in 1968, Lupin is an India-based pharmaceutical company focused
on the manufacture and global marketing of finished dosages and active
pharmaceutical ingredients (APIs). Lupin is the eighth largest company in the
domestic market and is the largest Indian company in the US based on TRx.
Lupin is also increasing its presence in Japan and Europe. FY10 revenue was
Rs47.4bn, with 19% derived from global API sales, 28% from Indian finished
dosages, 35% from US finished dosages and 18% from RoW and Japan finished
dosages.
Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
litigation (including the appeal process), accounting/disclosure, and product
pricing risk from generics competition. Pricing pressure in the US market
because of increased competition may continue. Margin pressure on account of
appreciation of the rupee could also negatively impact earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Lupin Limited
Outlook strong despite branded weakness
Strong Buy in the current weakness
We believe current valuations provide a good opportunity to Buy into a great
franchise which has got derisked as US brands business becomes smaller. The
execution in the US generic business is top notch (clearly best in India) - a business
we would like to own going into a generic patent cliff. FY13 is likely to be a strong
year for Lupin with significant no. of O.C. launches and Ziprasidone exclusivity.
Salix deal, Allernaze and O.C. launches imply robust FY12 outlook
Salix deal will result in US$10mn upfront payment to Lupin, most of which is to
be recognized in FY12. Mgmt. has resolved packaging issues related to Allernaze
and expects to launch the product in the next 3-4 mths. We understand that FY12
O.C. launches are authorized generics and therefore add certainity to outlook.
Earnings outlook remains strong, M&A triggers remain
While we reduce our PT following minor cuts to our FY12/13 EPS on weaker US
branded business, the earnings growth outlook remains strong with 19% CAGR
from FY11-13. Mgmt. is looking at close couple of potential deals in the US
speciality space as well as in the ROW space in FY12. We believe this could
further boost earnings outlook and drive further share price performance.
Valuation: Maintain Buy, PT Rs 525 (from Rs 540)
We derive our price target using DCF-based methodology, explicitly forecasting
long-term valuation drivers with UBS’s VCAM tool and a WACC of 11%. At our
PT stock will trade at 19x FY13 P/E. Lupin and Ranbaxy are now our preferred
picks in the Indian Pharma space.
Outlook remains strong
We reiterate our Buy on Lupin as the current weakness in the stock price is
likely to be temporary. Lupin is likely to achieve our FY11 estimates despite
substantial shortfall in US speciality business. The strong execution in US
generics has fully offset the shortfall in US Speciality.
We believe the earnings growth outlook remains strong with 19%YoY
CAGR from FY11-FY13E. Mgmt. is targeting earnings growth CAGR of
25%YoY. The co. expect at least 40-45 US launches over the next 2 years,
which we believe will help drive strong growth in US generics business.
Our recent meeting with the mgmt. indicates that the mgmt is fairly focused
on M&A and expects to close a couple of deals in the ROW markets during
FY12 as well as potential deals in the US speciality space in the near term.
We therefore see upside risks to our FY12/13 estimates.
FY13 is likely to be a strong year for Lupin with significant no. of O.C.
launches and Ziprasidone co-exclusivity.
US generics – Strong execution
Lupin’s execution continues to remain strong, with co. continuing to maintain
high marketshare in majority of its product launches. We therefore see 2011-12
patent cliff as a significant opportunity for Lupin. Co. expects 40-45 launches
over the next 2 years.
Oral contraceptives remain a significant opportunity for the co. While the no. of
expected generic competitors have increased from 4-5 to 7-8, mgmt. believes the
opportunity remains meaningful. Mgmt. believes 1) a large product basket and
2) being backward integrated on API will be the key differentiators for the co.
and help it gain market share. Mgmt. expects revenues of up to US$150mn p.a.
as the full basket of products gets approved.
According to mgmt. the previously announced 3-4 O.C. launches for FY12 are
authorized generics and therefore not contingent on timing of FDA approval or
legal issues. This further boosts the growth outlook for US generics business in
FY12.
US Speciality – Acquisitions to boost business
Management continues to remain extremely committed to this business. The co.
is looking at a few potential brand acquisitions in the next few months to offset
the gap created due to underperformance of Antara and delay in Allernaze
launch. Mgmt. expects to launch Allernaze in the next 3-4 months as the
packaging issues have been sorted out.
We remain conservative on the US Speciality business, which while profitable
remains risky (threat of potential generic entrants).
Antara
While the mgmt. still believes that Antara TRx are turning the bottom, we see no
evidence of the same as yet. Also, it remains unclear if Antara will be impacted
by Tricor genericization (latest by Jul 1, 2012). It may happen sooner as generic
fenofibrate continues to gain market share rapidly. We believe it will be difficult
for Antara to escape this trend.
We therefore from a conservative standpoint project significant decline in
Antara sales going forward.
Suprax
With little imminent threat to Suprax, we believe Suprax revenues are likely to
continue in FY12/13. Also, sales being spread across multiple dosage forms is
likely to further make is tough for generic entrants to capture the whole market.
Mgmt. continues to work on Suprax ‘drops’ as the next dosage form to extend
the lifecycle and grow the brand.
Valuations
We derive our price target using DCF-based methodology, explicitly forecasting
long-term valuation drivers with UBS’s VCAM tool and a WACC of 11%. At
our price target, the stock will trade at 19x FY13 earnings. We project a 19%
EPS CAGR over FY11-FY13.
Lupin Limited
Incorporated in 1968, Lupin is an India-based pharmaceutical company focused
on the manufacture and global marketing of finished dosages and active
pharmaceutical ingredients (APIs). Lupin is the eighth largest company in the
domestic market and is the largest Indian company in the US based on TRx.
Lupin is also increasing its presence in Japan and Europe. FY10 revenue was
Rs47.4bn, with 19% derived from global API sales, 28% from Indian finished
dosages, 35% from US finished dosages and 18% from RoW and Japan finished
dosages.
Statement of Risk
We believe risks include regulatory risks, FDA approval, timing of approvals,
litigation (including the appeal process), accounting/disclosure, and product
pricing risk from generics competition. Pricing pressure in the US market
because of increased competition may continue. Margin pressure on account of
appreciation of the rupee could also negatively impact earnings.
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