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Lupin ----------------------------------------------------------------------------- Maintain OUTPERFORM
Margins continue to be subdued despite strong sales
● We liked strong sales growth across regions and adjusted for oneoffs,
sales beat was 4%. Sequential increase in US sales was due
to (1) seasonally strong quarter for Suprax, (2) end of channel destocking
of Dec quarter, (3) Antara sales start growing and (4)
benefit of pick-up in Cephs sales due to reduced competition.
● India sales growth was tepid at 16% as Lupin has been shifting
focus from anti-infectives to chronics and expects FY12 growth of
20% with launch of more than 40 products.
● Margins continue to be subdued. Gross margins declined QoQ by
180 bp as Lotrel pricing reduced further with the entry of Par
Pharma in Jan 2011. EBITDA margin was impacted by (1) high
R&D cost at 9.7% of sales versus 8.1% for 9MFY11; (2) expenses
for the newly commissioned Indore SEZ. However, margins were
weak as it benefitted from (1) forex gain of Rs130 mn (other
expenses) & (2) benefit of Salix upfront payment included in sales.
● We maintain OUTPERFORM as FY13 EPS growth of 27% is
significant and not yet priced in. FY12 EPS reduces by 4% as
upfront payment from Salix has been factored in FY11.
Figure 1: Sales split for 4Q11 versus CS estimates
Rs mn 4Q11A 4Q11E Diff (%) 4Q10A YoY %
Formulations 12,144 11,517 5% 10,729 13%
Developed markets 7,853 7,290 8% 7,136 10%
EU+US 6,235 5,826 7% 5,874 6%
Japan 1,618 1,464 11% 1,262 28%
Domestic 3,071 3,128 -2% 2,651 16%
Developing markets 1,220 1,099 11% 941 30%
API 2,489 2,493 0% 2,226 12%
Source: Company data, Credit Suisse estimates
Healthy sales trend across geographies
Overall sales were 9% higher than expected but benefitted from
upfront payment from Salix. Adjusted for one-offs, sales beat was 4%.
● Sequential improvement in US sales was driven by (1) seasonally
strong quarter for Suprax, (2) end of channel de-stocking in Dec
quarter, (3) Antara sales have started growing and (4) benefit of
pick-up in cephs sales as a competitor had manufacturing issues.
The latter benefit should ramp up further in the June quarter.
● India sales growth was tepid at 16% as Lupin has been shifting
focus from anti-infectives to chronics. However, the company
expects to grow at 20% in FY12 with launch of more than 40
products. The secondary sales has been strong at 24% in March
2011 (AIOCD) and offers comfort on the guidance.
● Japanese sales growth of 28% was higher than expected. This
growth was partly helped by Yen appreciation and new product
introduction. Lupin introduced five new products in Japan in FY11
and plans to launch seven new products in FY12.
● Reconciliation of geographical sales split with the reported sales
leaves a gap of Rs581 mn, which, we believe, includes the upfront
payment from Salix.
Margins weaker than expected
Both gross and EBITDA margins were below our expectation. Gross
margin declined sequentially by 180 bp as the pricing pressure on
Lotrel, with the entry of Par Pharma in Jan 2011, has been significant.
EBITDA margin was impacted by (1) high R&D cost which was higher
at 9.7% of sales compared to 8.1% for first nine months (2) expenses
related to Indore SEZ which has just been commissioned. However,
margins benefitted from (1) forex gain of Rs130 mn included in other
expenses and (2) benefit of Salix upfront payment has been included
in sales. Overall, EBITDA margins were weaker than expected.
Figure 2: 4Q11 consolidated result versus CS estimates
Rs mn 4Q11A 4Q11E Diff (%) 4Q10A YoY %
Net sales 15,115 13,921 9% 12,848 18%
EBITDA 2,687 2,631 2% 2,491 8%
EBITDA margin 17.8% 18.9% -1% 19.4% -1.6%
Depreciation 463 414 12% 407 14%
Other income 453 334 36% 539 -16%
Interest cost 78 81 -4% 78 0%
Income taxes 312 346 -10% 293 6%
Minority interest 16 38 -58% 45 -64%
Net income 2,272 2,086 9% 2,207 3%
Source: Company data, Credit Suisse estimates
Key takeaways from the conference call
● Allernaze: The management confidence appeared low for the
launch of Allernaze in FY12.
● FY12 ANDA filing target is more than 30 (versus 21 ANDAs filed
in FY11) and FY12 launch target is 10 products in the US.
● Lupin has made an upfront payment to Abbott in settlement on
fenofibrate patents and there will not be recurring royalty
payments.
● FY12 capex is US$100 mn, similar to FY11. Lupin has already
spent more than US$20 mn on biosimilars. Lupin has six products
in the pipeline, of which two are entering clinics this month. One of
them is a bio-better.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lupin ----------------------------------------------------------------------------- Maintain OUTPERFORM
Margins continue to be subdued despite strong sales
● We liked strong sales growth across regions and adjusted for oneoffs,
sales beat was 4%. Sequential increase in US sales was due
to (1) seasonally strong quarter for Suprax, (2) end of channel destocking
of Dec quarter, (3) Antara sales start growing and (4)
benefit of pick-up in Cephs sales due to reduced competition.
● India sales growth was tepid at 16% as Lupin has been shifting
focus from anti-infectives to chronics and expects FY12 growth of
20% with launch of more than 40 products.
● Margins continue to be subdued. Gross margins declined QoQ by
180 bp as Lotrel pricing reduced further with the entry of Par
Pharma in Jan 2011. EBITDA margin was impacted by (1) high
R&D cost at 9.7% of sales versus 8.1% for 9MFY11; (2) expenses
for the newly commissioned Indore SEZ. However, margins were
weak as it benefitted from (1) forex gain of Rs130 mn (other
expenses) & (2) benefit of Salix upfront payment included in sales.
● We maintain OUTPERFORM as FY13 EPS growth of 27% is
significant and not yet priced in. FY12 EPS reduces by 4% as
upfront payment from Salix has been factored in FY11.
Figure 1: Sales split for 4Q11 versus CS estimates
Rs mn 4Q11A 4Q11E Diff (%) 4Q10A YoY %
Formulations 12,144 11,517 5% 10,729 13%
Developed markets 7,853 7,290 8% 7,136 10%
EU+US 6,235 5,826 7% 5,874 6%
Japan 1,618 1,464 11% 1,262 28%
Domestic 3,071 3,128 -2% 2,651 16%
Developing markets 1,220 1,099 11% 941 30%
API 2,489 2,493 0% 2,226 12%
Source: Company data, Credit Suisse estimates
Healthy sales trend across geographies
Overall sales were 9% higher than expected but benefitted from
upfront payment from Salix. Adjusted for one-offs, sales beat was 4%.
● Sequential improvement in US sales was driven by (1) seasonally
strong quarter for Suprax, (2) end of channel de-stocking in Dec
quarter, (3) Antara sales have started growing and (4) benefit of
pick-up in cephs sales as a competitor had manufacturing issues.
The latter benefit should ramp up further in the June quarter.
● India sales growth was tepid at 16% as Lupin has been shifting
focus from anti-infectives to chronics. However, the company
expects to grow at 20% in FY12 with launch of more than 40
products. The secondary sales has been strong at 24% in March
2011 (AIOCD) and offers comfort on the guidance.
● Japanese sales growth of 28% was higher than expected. This
growth was partly helped by Yen appreciation and new product
introduction. Lupin introduced five new products in Japan in FY11
and plans to launch seven new products in FY12.
● Reconciliation of geographical sales split with the reported sales
leaves a gap of Rs581 mn, which, we believe, includes the upfront
payment from Salix.
Margins weaker than expected
Both gross and EBITDA margins were below our expectation. Gross
margin declined sequentially by 180 bp as the pricing pressure on
Lotrel, with the entry of Par Pharma in Jan 2011, has been significant.
EBITDA margin was impacted by (1) high R&D cost which was higher
at 9.7% of sales compared to 8.1% for first nine months (2) expenses
related to Indore SEZ which has just been commissioned. However,
margins benefitted from (1) forex gain of Rs130 mn included in other
expenses and (2) benefit of Salix upfront payment has been included
in sales. Overall, EBITDA margins were weaker than expected.
Figure 2: 4Q11 consolidated result versus CS estimates
Rs mn 4Q11A 4Q11E Diff (%) 4Q10A YoY %
Net sales 15,115 13,921 9% 12,848 18%
EBITDA 2,687 2,631 2% 2,491 8%
EBITDA margin 17.8% 18.9% -1% 19.4% -1.6%
Depreciation 463 414 12% 407 14%
Other income 453 334 36% 539 -16%
Interest cost 78 81 -4% 78 0%
Income taxes 312 346 -10% 293 6%
Minority interest 16 38 -58% 45 -64%
Net income 2,272 2,086 9% 2,207 3%
Source: Company data, Credit Suisse estimates
Key takeaways from the conference call
● Allernaze: The management confidence appeared low for the
launch of Allernaze in FY12.
● FY12 ANDA filing target is more than 30 (versus 21 ANDAs filed
in FY11) and FY12 launch target is 10 products in the US.
● Lupin has made an upfront payment to Abbott in settlement on
fenofibrate patents and there will not be recurring royalty
payments.
● FY12 capex is US$100 mn, similar to FY11. Lupin has already
spent more than US$20 mn on biosimilars. Lupin has six products
in the pipeline, of which two are entering clinics this month. One of
them is a bio-better.
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