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Lupin FY11 annual report dwells more on its strong FY11 show and throws limited light on its
future growth strategy. We are positive on the stock due to its favourable business mix, strong
core earnings prospects and ANDA pipeline. At the CMP, upside appears limited and we would
recommend buying only on dips.
US, India and Japan to be the key growth drivers
Focus on expanding branded US formulation business: Formulations sales in the US market
were Rs 20.8bn (+21% yoy) during FY11. Generics represented 70% of overall US sales, with
the US Branded Business making up the balance. In FY11, the US brand business reported
revenues of US$133m. During FY11, Lupin ramped up its US sales force to over 170 given
the focus on growing Antara. Lupin's specialty sales forces would address both Pediatricians
and Primary Care Physicians and provide the company significant headroom to increase
branded sales in the US. Lupin further aims to strengthen its branded portfolio with valueadded line extensions and will continue to invest in developing new products built on its
proprietary advanced drug delivery technologies. The company is also on the look out for
acquiring brands to fast track its formidable branded presence.
Japan business on strong wicket: Kyowa, Lupin's subsidiary in Japan, posted robust net sales
of Rs6.2bn (+16% yoy) and accounted for 11% of Lupin's FY11 revenues. The company
continues to ramp up its operations in Japan having launched 6 new products and filing
applications for another 8 during the year.
In the emerging markets, India remains the main growth driver and a critical focus market.
India contributed 27% of gross sales at Rs15.7bn (+16.5% yoy) during FY11. This growth was
driven by strong performance and increasing market share in the CVS, Diabetes, CNS,
Asthma and Gastro therapeutic segments. As per ORG IMS Mar-2011 data, Lupin is currently
the 7th largest Indian domestic formulations company having registered growth of 13.8%
during FY11 and has an overall market share of 2.7% of the Indian Pharma Industry.
Lupin's subsidiaries in South Africa and Philippines doing well too: Pharma Dynamics, Lupin's
subsidiary in South Africa remains the fastest growing top 10 generic company in the market,
recording growth of 38% in revenues to Rs1.8bn. Pharma Dynamics is now ranked 6th
amongst the generic pharmaceutical companies in South Africa with a clear leadership in the
cardiovascular segment. Lupin's Philippines subsidiary, Multicare Pharmaceuticals, grew by
28% during FY11. As a premium branded generics company, Multicare as built a strong
position in the women's health and the paediatric primary segment
Balance sheet position strengthens
Lupin has strengthened its balance sheet position further, by driving efficiencies in working
capital position and reducing leverage. The holding period for net working capital turnover has
reduced from 90 days (end-FY10) to 83 days (end-FY11) and for Debtors from 86 days to 80
days. Despite capex of Rs4.8bn, gearing has declined from 0.37x (end-FY10) to 0.22x (end-
FY11).
Strong ANDA pipeline
During FY11, Lupin filed 21 ANDAs with the US FDA and believes to maintain its position as
one of the top 10 ANDA filers for the US market. The cumulative number of ANDA filings now
stands at 148, with 48 approvals received till date. Lupin has 77 Para IV filings with 20 of
them being first-to-file (FTFs) opportunities.
Focus on building and partnering IP based technology platforms: Lupin extended its
arrangement with Salix Pharmaceuticals by granting worldwide rights (excluding India and
select geographies) to Salix for its proprietary bioadhesive technology for Rifaximin.
Buy only on dips as we expect limited upside from current levels
Favourable business mix: US, India and Japan account for 35%, 27% and 11% of FY11
revenues, respectively. We remain optimistic on robust US business due to: (a) rich product
portfolio in US, (b) second-largest ANDA pipeline among peers (100); (c) deepening presence
in niche segments (OCs, opthalmics, oncology). We expect domestic formulation to do well
too with its incremental focus towards chronic and lifestyle product portfolio. Kyowa could also
benefit from increased generic penetration post the recent calamities in Japan
Challenges remain but we believe opportunities outweigh them: We witnessed initial signs of
weakness in its US branded business during 3QFY11 but management attributed it to nonoperating factors. Also, launch delays took place in AllerNaze (earlier Sept 10 to now Sept 11)
and Oral Contraceptives (OCs) from 1HFY12 to 2HFY12. However, Lupin remains confident
of its US growth as seen by its move to expand its US field force. It expects Suprax upside to
continue in near term which coupled with AllerNaze launch in 2Q-3QFY12 should drive US
business
We expect strong core earnings growth (19% over FY11-13F) and RoEs (25%+): Due to
weakness in US brand business (Lupin's key differentiator), we value Lupin at a 5% discount
to peers. Lupin core business (Rs458/sh) valued at 20.4x FY12F EPS (5% discount to
sector). Para IV pipeline valued at Rs7/sh (post 20% execution risk discount) which yields our
TP of Rs465
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lupin FY11 annual report dwells more on its strong FY11 show and throws limited light on its
future growth strategy. We are positive on the stock due to its favourable business mix, strong
core earnings prospects and ANDA pipeline. At the CMP, upside appears limited and we would
recommend buying only on dips.
US, India and Japan to be the key growth drivers
Focus on expanding branded US formulation business: Formulations sales in the US market
were Rs 20.8bn (+21% yoy) during FY11. Generics represented 70% of overall US sales, with
the US Branded Business making up the balance. In FY11, the US brand business reported
revenues of US$133m. During FY11, Lupin ramped up its US sales force to over 170 given
the focus on growing Antara. Lupin's specialty sales forces would address both Pediatricians
and Primary Care Physicians and provide the company significant headroom to increase
branded sales in the US. Lupin further aims to strengthen its branded portfolio with valueadded line extensions and will continue to invest in developing new products built on its
proprietary advanced drug delivery technologies. The company is also on the look out for
acquiring brands to fast track its formidable branded presence.
Japan business on strong wicket: Kyowa, Lupin's subsidiary in Japan, posted robust net sales
of Rs6.2bn (+16% yoy) and accounted for 11% of Lupin's FY11 revenues. The company
continues to ramp up its operations in Japan having launched 6 new products and filing
applications for another 8 during the year.
In the emerging markets, India remains the main growth driver and a critical focus market.
India contributed 27% of gross sales at Rs15.7bn (+16.5% yoy) during FY11. This growth was
driven by strong performance and increasing market share in the CVS, Diabetes, CNS,
Asthma and Gastro therapeutic segments. As per ORG IMS Mar-2011 data, Lupin is currently
the 7th largest Indian domestic formulations company having registered growth of 13.8%
during FY11 and has an overall market share of 2.7% of the Indian Pharma Industry.
Lupin's subsidiaries in South Africa and Philippines doing well too: Pharma Dynamics, Lupin's
subsidiary in South Africa remains the fastest growing top 10 generic company in the market,
recording growth of 38% in revenues to Rs1.8bn. Pharma Dynamics is now ranked 6th
amongst the generic pharmaceutical companies in South Africa with a clear leadership in the
cardiovascular segment. Lupin's Philippines subsidiary, Multicare Pharmaceuticals, grew by
28% during FY11. As a premium branded generics company, Multicare as built a strong
position in the women's health and the paediatric primary segment
Balance sheet position strengthens
Lupin has strengthened its balance sheet position further, by driving efficiencies in working
capital position and reducing leverage. The holding period for net working capital turnover has
reduced from 90 days (end-FY10) to 83 days (end-FY11) and for Debtors from 86 days to 80
days. Despite capex of Rs4.8bn, gearing has declined from 0.37x (end-FY10) to 0.22x (end-
FY11).
Strong ANDA pipeline
During FY11, Lupin filed 21 ANDAs with the US FDA and believes to maintain its position as
one of the top 10 ANDA filers for the US market. The cumulative number of ANDA filings now
stands at 148, with 48 approvals received till date. Lupin has 77 Para IV filings with 20 of
them being first-to-file (FTFs) opportunities.
Focus on building and partnering IP based technology platforms: Lupin extended its
arrangement with Salix Pharmaceuticals by granting worldwide rights (excluding India and
select geographies) to Salix for its proprietary bioadhesive technology for Rifaximin.
Buy only on dips as we expect limited upside from current levels
Favourable business mix: US, India and Japan account for 35%, 27% and 11% of FY11
revenues, respectively. We remain optimistic on robust US business due to: (a) rich product
portfolio in US, (b) second-largest ANDA pipeline among peers (100); (c) deepening presence
in niche segments (OCs, opthalmics, oncology). We expect domestic formulation to do well
too with its incremental focus towards chronic and lifestyle product portfolio. Kyowa could also
benefit from increased generic penetration post the recent calamities in Japan
Challenges remain but we believe opportunities outweigh them: We witnessed initial signs of
weakness in its US branded business during 3QFY11 but management attributed it to nonoperating factors. Also, launch delays took place in AllerNaze (earlier Sept 10 to now Sept 11)
and Oral Contraceptives (OCs) from 1HFY12 to 2HFY12. However, Lupin remains confident
of its US growth as seen by its move to expand its US field force. It expects Suprax upside to
continue in near term which coupled with AllerNaze launch in 2Q-3QFY12 should drive US
business
We expect strong core earnings growth (19% over FY11-13F) and RoEs (25%+): Due to
weakness in US brand business (Lupin's key differentiator), we value Lupin at a 5% discount
to peers. Lupin core business (Rs458/sh) valued at 20.4x FY12F EPS (5% discount to
sector). Para IV pipeline valued at Rs7/sh (post 20% execution risk discount) which yields our
TP of Rs465
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