Lupin: Lower margin leads to PAT miss :: Kotak Sec

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Lupin (LPC)
Pharmaceuticals
Lower margin leads to PAT miss. Despite sales being in line with our estimate, PAT
adjusted for research income declined 5% yoy to Rs2 bn due to lower EBITDA margin at
17.3%, down 220 bps yoy. We, however, expect a better 2HFY12E on account of
continuing sales momentum in India/ROW and US product launches. We lower our
FY2012E EPS by 5% to Rs21.4 due to lower margin and retain FY2013E EPS at Rs26.3.
We expect muted EPS growth (ex-research income) of 4% in FY2012E due to lower
margin and increase in tax rate; however, expect EPS growth of 23% in FY2013E. We
value Lupin at 20X FY2013E EPS. Maintain ADD with PT at Rs530 (unchanged).
Sales at Rs16.4 bn were up 17% yoy, largely in line with our estimate
Sales grew 17% yoy to Rs16.4 bn, 3% higher than our estimate led by (1) India (30% of sales)
grew 22%, 4% higher than our estimate due to Rs180 mn from insulin sales as part of the
marketing deal concluded with Eli Lilly. Excluding this, sales growth was at 18%, in line with our
estimate, (2) US (34% of sales) beat our estimates by 6%, with branded business sales at US$36
mn, up 19% yoy and generics sales at US$86 mn, up 14% yoy. While Suprax sales increased by
43% yoy (28% volume growth), Antara declined 3% yoy and Aerochamber declined yoy.
EBITDA margin plummets to 17.3%, PAT excluding research income down 5% yoy
Despite higher gross margin at 63.7%, up 260 bps yoy, EBITDA margin adjusted for forex was at
17.3%, down 220 bps yoy and lower than our estimates by 180 bps due to higher other expenses
which shot up 45% yoy. This led to reported EBITDA being flat yoy despite sales growth of 17%
while PAT adjusted for the US$20 mn research income was down 5% yoy to Rs2 bn.
We expect a better 2HFY12E on account of pick-up in US sales
While PAT adjusted for research income is flat yoy in 1HFY12, we factor in 4% EPS growth
excluding research income in FY2012E, implying a much better 2HFY12E on account of (1) higher
branded sales in US due to seasonality, (2) pick-up in generics sales in US. Lupin launched 6
generics in 1HFY11 in line with guidance and expects to launch 4-6 more and (3) easing of margin
pressure in 2HFY12E at 18.2% versus 17.4% in 1HFY12.
We reduce our FY2012E estimates by 5%. Maintain ADD with PT at Rs530 (unchanged)
We revise our margin assumptions downwards for FY2012E, therefore reduce our FY2012E
estimates by 5%, however, we retain our FY2013E estimates. We do not add sales of Fortamet ER
(US$85 mn), sole FTF, which Lupin stopped selling post its launch in late September. We expect
EPS growth to pick up to 23% in FY2013E as we expect sales growth in US generics at 37% from
20% in FY2012E driven by limited competition launches of Tricor, Combivir, Ziprasidone and OCs.