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Lupin Ltd.
Summary
Lupin is an innovation-led pharmaceutical company having presence in multiple countries and
producing generic and branded formulations and APIs. It has a direct marketing presence in
almost all its target markets and is among the highest spenders on R&D of all Indian
pharmaceutical companies. Lupin is the one of the world’s largest manufacturers of TB drugs
and the segment contributes 10% to Lupin’s revenues.
Robust OC pipeline
Lupin has 26 products in its Oral Contraceptives (OC) pipeline which would help it grab a
sizeable pie in the $600mn generic OC market. Already, it has released two OCs in the past two
months (Femcon Fe and NOR-QD) and is expected to keep doing so over the next two years.
Although the market for OCs is dominated by MNCs such as Teva, Watson, Mylan, etc., most of
the products to be released are limited competition products having four or less competitors,
thereby garnering higher revenues for each individual player.
Geographical diversification provides formidable presence
Lupin is present in several countries/regions such as USA, Europe, Japan, South Africa,
Philippines, Australia and CIS making it geographically well diversified. Company derives almost
45% of its revenues from US, EU and Japan. It is 5th largest generic player in the US in terms of
prescriptions. Japanese government plans to increase generic penetration to 30% of the $7bn
Japanese pharmaceutical market by 2012. Lupin’s 100% subsidiary, Kyowa with its 200 product
portfolio is well positioned to capture this opportunity. Presence in the fast growing markets of
South Africa, Philippines and CIS presents huge growth opportunity going ahead.
Consistent Financial Performance and Strong Balance Sheet
Lupin has a legacy of 26 quarters of consistent financial performance with sales growing
annually at a 5-year CAGR of 27% and PAT growing annually at a CAGR of 38%. This is backed by
a low leveraged balance sheet (D/E ratio has come down from 1.48 in FY06 to 0.35 in FY11). PAT
margins have improved from 10% in FY06 to 15% in FY11 whereas EBITDA margins have moved up
from 17% in FY06 to 21% in FY11.
Valuation
Lupin is expected to continue with its revenue growth rate over the next couple of years due to
expected OC launches, limited competition products and large ANDA pipeline. Geographical
diversification guarantees consistent revenue stream and regional risk mitigation. At the CMP of
`465, Lupin is trading at 17x its consensus FY13E earnings. Given Lupin’s continued focus on
innovation, entry into newer, under-penetrated markets and relatively low underlying business
risk, we have valued the stock at 19x its consensus FY13E earnings which is comparable to its
peers. Hence, we recommend a BUY rating on the stock with a target price of `531.
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