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While Lupin's ex-US and IP businesses remain robust, we believe the US could show only muted
growth in the near term, largely due to weakness in its branded business. We expect a gradual
recovery but a value accretive acquisition could surprise us. Significant outperformance limits
upside, downgrade to Hold.
While Lupin’s ex-US business and IP strength is gaining momentum...
Lupin’s ex-US businesses remains healthy (1QFY12: India 17% yoy revenue growth, Japan 15%
yoy at constant currency). We expect Lupin’s tie-up with Eli-Lily for India and Sanofi Aventis for its
Philippines business to add to this growth momentum. Lupin’s Intellectual Property (IP) business
has shown strength through its recent licensing deal with Medicis (milestone receipt of US$20m)
besides the recurring quarterly milestone receipt of US$1.5m from Salix.
…the US business signals some near-term pain
1QFY12 performance was weak – EBITDA and PAT grew by 3% and 7% respectively – as it was
adversely impacted by: 1) significant pricing erosion in gLotrel; 2) muted growth in US branded
business revenues; 3) high field force costs; and 4) delays in the launches Allernaze (earlier
estimated in 3QFY12 now expected in FY13) and Oral Contraceptives (OCs, previously full range
in 3Q-4QFY12 but now in FY13).
Gradual recovery expected but any value accretive acquisition could spur growth
We expect a gradual recovery in operating margin from FY13 as: 1) benefits from AllerNaze and
OCs kick in; and 2) remedial measures for the US branded business (suprax brand extension,
sales force optimisation to support Antara) take effect. This should be aided by the FTF pipeline
in US, which is gaining traction, but is back-ended. While a gradual recovery is expected, any
value accretive acquisition could increase growth
Downgrade to Hold on outperformance and absence of significant catalysts
We factor margin pressure into our forecasts resulting in a 4%/8% cut to our FY12F/13F
earnings. We roll forward our valuation to FY13. We continue to value Lupin’s core business at a
5% discount to the FY13F sector PE (of 18x, on our estimates) which results in our TP of Rs460.
With 14% outperformance of the sector in the last three months and with no significant upside
triggers in the near term, we downgrade the stock to Hold.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
While Lupin's ex-US and IP businesses remain robust, we believe the US could show only muted
growth in the near term, largely due to weakness in its branded business. We expect a gradual
recovery but a value accretive acquisition could surprise us. Significant outperformance limits
upside, downgrade to Hold.
While Lupin’s ex-US business and IP strength is gaining momentum...
Lupin’s ex-US businesses remains healthy (1QFY12: India 17% yoy revenue growth, Japan 15%
yoy at constant currency). We expect Lupin’s tie-up with Eli-Lily for India and Sanofi Aventis for its
Philippines business to add to this growth momentum. Lupin’s Intellectual Property (IP) business
has shown strength through its recent licensing deal with Medicis (milestone receipt of US$20m)
besides the recurring quarterly milestone receipt of US$1.5m from Salix.
…the US business signals some near-term pain
1QFY12 performance was weak – EBITDA and PAT grew by 3% and 7% respectively – as it was
adversely impacted by: 1) significant pricing erosion in gLotrel; 2) muted growth in US branded
business revenues; 3) high field force costs; and 4) delays in the launches Allernaze (earlier
estimated in 3QFY12 now expected in FY13) and Oral Contraceptives (OCs, previously full range
in 3Q-4QFY12 but now in FY13).
Gradual recovery expected but any value accretive acquisition could spur growth
We expect a gradual recovery in operating margin from FY13 as: 1) benefits from AllerNaze and
OCs kick in; and 2) remedial measures for the US branded business (suprax brand extension,
sales force optimisation to support Antara) take effect. This should be aided by the FTF pipeline
in US, which is gaining traction, but is back-ended. While a gradual recovery is expected, any
value accretive acquisition could increase growth
Downgrade to Hold on outperformance and absence of significant catalysts
We factor margin pressure into our forecasts resulting in a 4%/8% cut to our FY12F/13F
earnings. We roll forward our valuation to FY13. We continue to value Lupin’s core business at a
5% discount to the FY13F sector PE (of 18x, on our estimates) which results in our TP of Rs460.
With 14% outperformance of the sector in the last three months and with no significant upside
triggers in the near term, we downgrade the stock to Hold.
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