Strong operating performance - Lupin :: Centrum

Strong operating performance
Lupin’s results for Q3FY13 were better than our expectations. The company
reported 37%YoY growth in revenues, 360bps improvement in EBIDTA
margin and 43%YoY growth in net profit. The sales growth was across all
major geographies. Notably among them were, 68%YoY growth in the US
market and 48%YoY in Japanese market. The higher growth in US was due to
the launch of generic Tricor. The company’s 22 of the 43 generic products are
market leaders in the US. Lupin has entered the US generic market in the oral
contraceptive (OC) segment with a basket of eight products. We have a Buy
rating for the scrip with a target price of Rs699 (based on 22x FY14E EPS).
Excellent sales growth: Lupin reported 37%YoY growth in revenues from
Rs18.20bn to Rs25.01bn due to excellent growth in major markets. The sales
growth in various geographies is as follows: US formulations 68%YoY, Japan
48% (due to the acquisition of I’rom), S. Africa 43%, India formulations 14% and
RoW 8%. However, revenues from Europe declined by 7%YoY.
Higher tax rate: Lupin’s tax rate has gone up from 22.6% to 38.1% due to the
expiry of EOU benefits and unrealised profit on inventory lying with the
subsidiary. The management has guided a tax rate of 34-35% for FY13 and
FY14.

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Margin on rise: Lupin’s EBIDTA margin improved by 360bps from 20.6% to 24.2%
mainly due to the decline in other expenses. Its other expenses declined by 550bps
from 31.2% to 25.7% of total revenues due to strong sales growth. Material cost
increased by 300bps from 34.4% to 37.4% of total revenues due to the change in
product mix.
Rich product pipeline in the US: Lupin has a rich product pipeline for the US market.
It has filed 168 ANDAs of which 68 are approved and 100 are pending approval. The
company has withdrawn 16 ANDA s from US FDA during the quarter. Lupin launched
generic Tricor in the US during the quarter.
Leading player in domestic market: As per IMS MAT-Nov’12 data, Lupin
ranks 11th in the domestic market. Four of its products appear in the list of top
300 brands in India. Currently, none of its brands are under price control.
However, Tonact will come under price control under NPPP. Hence, Lupin
would have minimal impact due to NPPP.
Valuations: We expect Lupin to benefit from the strong global generic
business in the US, Japan and S. Africa. At the CMP of Rs604, the stock trades at
23.5x FY13E EPS of Rs25.7 and 19.0x FY14E EPS of Rs31.8. We have a Buy rating
for the scrip with a target price of Rs699 (based on 22x FY14E base EPS of
Rs31.8) with an upside of 16% over the CMP.