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Right Formula (tion)...!!!
Lupin has successfully transformed itself from a Tier-II API manufacturer to a fully integrated global generic
player. It has managed to deliver superior track record growth (48% CAGR in export formulations; 18% CAGR in
domestic formulations over FY08-11) aided by selective launches in niche fast-growing therapeutic areas. We
expect the export formulation business to grow by 26% CAGR over FY11-14E led by monetization of its generic
pipeline (FTF’s and OC’s) in the US market and consolidation of its position in the Japanese market. Growth in
domestic formulations (20% CAGR over FY11-14E) business will be primarily driven by new launches and
incremental sales from Eli Lilly alliance
Investment Rationale
Vertically integrated generic player with a balanced business model
Lupin has transformed itself from an API manufacturer to a fully integrated
company. Formulations constitute 84% of the product mix with most of the APIs
captively sourced. The company has gradually reduced its dependency on Anti-
TB, cephalosporin’s and increased its focus on high growth lifestyle category –
CVS, CNS, etc.
Export formulations – growth engine
The company derives 57% of sales (FY11) from export formulations mainly from
regulated markets. Its exceptional track record in US generics (5th largest by
prescription) is primarily attributed to selective product launches (limited
competition) and increasing contribution from branded formulations. New
launches include limited competition opportunities - Geodon, Tricor and Asacol
alongwith oral contraceptives (bouquet of 15 products through FY13E) will shall
combined drive growth over the next two years. The company has further
strengthened its position in Japan post I’rom acquisition (steriles segment) and
aims to increase its profitability with captive API sourcing. We estimate export
formulations to grow by 26% CAGR over FY11-14E and contribute 64% of sales.
Domestic Formulation business: An Established Cash Cow...
Lupin owns 2.7% market share with leadership in Anti-TB & Anti-Asthma
segments. Gradual migration towards fast growing chronic based portfolio and
incisive marketing strategies has resulted in consistent outperformance (18%
CAGR over FY08-11). Incremental revenue from the Eli Lilly alliance (Huminsulin
range of products) complements base revenue growth. We estimate the division
to record 20% CAGR over FY11-14E to ` 26.5bn.
Valuations
We expect Lupin to register earnings CAGR of 18% over FY11-14E. Its business
model enables healthy cash flow generation and augments requisite growth
funding. It aspires to be a USD 3bn company by FY15E. The company continues
to seek high-potential, low-risk acquisitions in key markets which shall further
complement its organic growth momentum. At CMP, the stock trades at 24.8x
FY12E and 20.0x FY13E earnings. We recommend Accumulate on the stock
with a target price of ` 608 (19x FY14E earnings).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Right Formula (tion)...!!!
Lupin has successfully transformed itself from a Tier-II API manufacturer to a fully integrated global generic
player. It has managed to deliver superior track record growth (48% CAGR in export formulations; 18% CAGR in
domestic formulations over FY08-11) aided by selective launches in niche fast-growing therapeutic areas. We
expect the export formulation business to grow by 26% CAGR over FY11-14E led by monetization of its generic
pipeline (FTF’s and OC’s) in the US market and consolidation of its position in the Japanese market. Growth in
domestic formulations (20% CAGR over FY11-14E) business will be primarily driven by new launches and
incremental sales from Eli Lilly alliance
Investment Rationale
Vertically integrated generic player with a balanced business model
Lupin has transformed itself from an API manufacturer to a fully integrated
company. Formulations constitute 84% of the product mix with most of the APIs
captively sourced. The company has gradually reduced its dependency on Anti-
TB, cephalosporin’s and increased its focus on high growth lifestyle category –
CVS, CNS, etc.
Export formulations – growth engine
The company derives 57% of sales (FY11) from export formulations mainly from
regulated markets. Its exceptional track record in US generics (5th largest by
prescription) is primarily attributed to selective product launches (limited
competition) and increasing contribution from branded formulations. New
launches include limited competition opportunities - Geodon, Tricor and Asacol
alongwith oral contraceptives (bouquet of 15 products through FY13E) will shall
combined drive growth over the next two years. The company has further
strengthened its position in Japan post I’rom acquisition (steriles segment) and
aims to increase its profitability with captive API sourcing. We estimate export
formulations to grow by 26% CAGR over FY11-14E and contribute 64% of sales.
Domestic Formulation business: An Established Cash Cow...
Lupin owns 2.7% market share with leadership in Anti-TB & Anti-Asthma
segments. Gradual migration towards fast growing chronic based portfolio and
incisive marketing strategies has resulted in consistent outperformance (18%
CAGR over FY08-11). Incremental revenue from the Eli Lilly alliance (Huminsulin
range of products) complements base revenue growth. We estimate the division
to record 20% CAGR over FY11-14E to ` 26.5bn.
Valuations
We expect Lupin to register earnings CAGR of 18% over FY11-14E. Its business
model enables healthy cash flow generation and augments requisite growth
funding. It aspires to be a USD 3bn company by FY15E. The company continues
to seek high-potential, low-risk acquisitions in key markets which shall further
complement its organic growth momentum. At CMP, the stock trades at 24.8x
FY12E and 20.0x FY13E earnings. We recommend Accumulate on the stock
with a target price of ` 608 (19x FY14E earnings).
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