Lupin - Decent Quarter, Outlook Bullish; Result Update Q2FY15 :: Edelweiss PDF link

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Lupin’s (LPC) Q2FY15 earnings were marginally above our estimate, primarily on lower tax rate despite the 6% miss on EBITDA. Management’s guidance of 8-10 launches in US during H2FY15 and maintenance of margin in the 28-30% range lends confidence to LPC achieving our estimates. We expect LPC’s premium valuations to sustain given exciting geographical mix, robust financials, unfolding niche US pipeline, consistent delivery and strong business outlook.

Key takeaways

a) LPC reiterated its H2FY15 margin guidance of 28-30% and is working towards further improving its operational and marketing performance; b) LPC expects 8-10 launches in H2FY15 in the US, includingDiovan, Welchol susp, Loestrin 24, etc; c) reiterated its revenue aspiration of USD5bn by 2018; d) US: launched Yaz last quarter, expects no more competition in Niaspan over next two quarters; e) expects nasal spray pipeline to show up in FY17/18 and inhalation products in FY19 in the US; and f) targeting US branded portfolio to revert to 30% of US sales via organic/inorganic means.

Marginal miss on EBITDA, PAT beat on lower tax rate

Revenue growth of 17% YoY was driven by: (a) US - USD202mn, up 21% YoY, down 23% QoQ - Q2 is seasonally a weak quarter, also Niaspan/Cymbalta faced additional competition; (b) India, up 20% YoY; and (c) Japan - up 22% YoY in JPY terms - Kyowa grew at 29%. EBITDA margin at 28.4% was marginally lower than estimate on higher overheads (staff, R&D costs). However, strong PAT growth (55%, 5% above estimate) was driven by higher other income and lower-than-expected tax rate.

Inorganic moves integral

LPC continues to scout for inorganic opportunities on both geographic expansion/technology platforms, and aspires to evolve into a specialty pharma player. We believe the company will need to make a significant acquisition to take it to its reiterated revenue aspiration of USD5bn by FY18.

LINK
https://www.edelweiss.in/research/Lupin--Decent-Quarter,-Outlook-Bullish;-Result-Update-Q2FY15/27372.html