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1Q12 operating performance was weak as expected - EBITDA and PAT grew by 3% and 7%
respectively (despite lower R&D expense) as US branded business revenue growth was muted.
Launch of Allernaze and ramp-up in OCs have now been pushed to FY13.
Muted revenue growth in US branded biz...
Lupin posted 1QFY12 revenues of Rs15.4bn (18% yoy) compared to our estimate of
Rs15.1bn and Bloomberg consensus of Rs15.5bn. The comparable quarter last year
benefited from gLotrel sales, excluding which we estimate revenue growth was 22%.
US business (35% of FY11 revenues) showed muted revenue growth of 7% yoy to Rs4.7bn.
US branded sales (Suprax, Antara) represented 30% of US revenues (similar share in 1Q11).
If we exclude our estimate of gLotrel contribution in 1QFY11 (Rs500m), US generic sales
increased by a healthy 27% yoy. However, US branded business (which has relatively higher
margins) remained muted at 7% yoy.
...however, India and Japan continue to show good performance
Domestic Formulations (28% of the FY11 revenues) revenues grew 17% yoy to Rs5bn.
Kyowa (Lupin's subsidiary in Japan, 11% of FY11 revenues) was another key growth driver,
reporting revenues of Rs1.7bn (28% yoy). Adjusted for a favorable currency movement, we
believe revenue growth was 17% .
API business revenues (15% of the FY11 revenues) grew at steady 12% yoy.
Operating results remained weak as expected
EBITDA stood at Rs2.7bn (3% yoy), in-line with our forecasts of Rs2.7bn. EBITDA margin
came in at 17.5% vs. 20% in 1Q11 and our estimates of 17.6%.
We attribute the lower EBITDA margin to: (a) absence of contribution from high margin
gLotrel sales and muted growth in US branded business revenues ; (b) commissioning of the
Indore SEZ facility; and (c) increase in field force (staff costs increased 23% yoy).
We note that the R&D expense as a percentage to revenues was lower at 7% (vs 7.9% in
1QFY11 and 8.5% in FY11)
Tax rate came in at 11.8% vs. 14.7% in 1Q11 and our estimate of 14%.
The company reported PAT of Rs2.1bn (7% yoy), 5% lower that our estimates of Rs2.2bn.
The earnings disappointment was on account of lower other income of Rs257m (12% yoy).
Balance sheet position strengthens
Lupin has strengthened its balance sheet position further, by reducing its working capital and
leverage.
Net Working capital decreased by 9% to Rs11.9bn at the end of 1Q12 as against Rs13.1bn at
the end of FY11.
Debt Equity Ratio improved to 0.16x at end-1Q12 end as compared to 0.22x at end-FY11,
despite a capex of Rs1.2bn during the quarter.
Recent newsflow has been mixed
Lupin has entered into a R&D agreement with Medicis wherein Lupin's proprietary formulation
technologies would be applied to multiple therapeutic compounds. Medicis will have global
exclusive rights (excluding India) for the products developed under the agreement. In return,
Lupin expects to receive a US$20m upfront payment from Medicis and also be eligible for
future research, development, regulatory and other milestones of up to $38 million, as well as
a single digit royalty on sales by Medicis.
Lupin has also settled all ongoing litigations with Medicis over generic versions of Solodyn. As
per the settlement, Lupin is entitled to sell its gSolodyn in 45mg, 90mg, and 135mg strengths
starting November 2011; 65mg and 115mg strengths from February 2018; and 55mg, 80mg
and 105mg strengths from February 2019. While Lupin has not disclosed Solodyn sales,
Medicis had reported sales of US$103.5m in 1QCY11 for its acne products category which
mainly comprises of Solodyn and Ziana.
Launch of AllerNaze has further got delayed and is now expected to happen in FY13.
In the lucrative oral contraceptives category, management now expects only a few approvals
in 2H with approvals for the complete basket now pushed back to FY13
Limited upside on current valuations; more details awaited from analyst call
Our TP Rs465 is derived by valuing Lupin's core business at Rs458 (FY12F PE of 20.4x,
applying a 5% discount to sector) and its Para-IV pipeline at Rs7ps (post 20% execution risk
discount).
On our current forecasts and target price, we see limited upside.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1Q12 operating performance was weak as expected - EBITDA and PAT grew by 3% and 7%
respectively (despite lower R&D expense) as US branded business revenue growth was muted.
Launch of Allernaze and ramp-up in OCs have now been pushed to FY13.
Muted revenue growth in US branded biz...
Lupin posted 1QFY12 revenues of Rs15.4bn (18% yoy) compared to our estimate of
Rs15.1bn and Bloomberg consensus of Rs15.5bn. The comparable quarter last year
benefited from gLotrel sales, excluding which we estimate revenue growth was 22%.
US business (35% of FY11 revenues) showed muted revenue growth of 7% yoy to Rs4.7bn.
US branded sales (Suprax, Antara) represented 30% of US revenues (similar share in 1Q11).
If we exclude our estimate of gLotrel contribution in 1QFY11 (Rs500m), US generic sales
increased by a healthy 27% yoy. However, US branded business (which has relatively higher
margins) remained muted at 7% yoy.
...however, India and Japan continue to show good performance
Domestic Formulations (28% of the FY11 revenues) revenues grew 17% yoy to Rs5bn.
Kyowa (Lupin's subsidiary in Japan, 11% of FY11 revenues) was another key growth driver,
reporting revenues of Rs1.7bn (28% yoy). Adjusted for a favorable currency movement, we
believe revenue growth was 17% .
API business revenues (15% of the FY11 revenues) grew at steady 12% yoy.
Operating results remained weak as expected
EBITDA stood at Rs2.7bn (3% yoy), in-line with our forecasts of Rs2.7bn. EBITDA margin
came in at 17.5% vs. 20% in 1Q11 and our estimates of 17.6%.
We attribute the lower EBITDA margin to: (a) absence of contribution from high margin
gLotrel sales and muted growth in US branded business revenues ; (b) commissioning of the
Indore SEZ facility; and (c) increase in field force (staff costs increased 23% yoy).
We note that the R&D expense as a percentage to revenues was lower at 7% (vs 7.9% in
1QFY11 and 8.5% in FY11)
Tax rate came in at 11.8% vs. 14.7% in 1Q11 and our estimate of 14%.
The company reported PAT of Rs2.1bn (7% yoy), 5% lower that our estimates of Rs2.2bn.
The earnings disappointment was on account of lower other income of Rs257m (12% yoy).
Balance sheet position strengthens
Lupin has strengthened its balance sheet position further, by reducing its working capital and
leverage.
Net Working capital decreased by 9% to Rs11.9bn at the end of 1Q12 as against Rs13.1bn at
the end of FY11.
Debt Equity Ratio improved to 0.16x at end-1Q12 end as compared to 0.22x at end-FY11,
despite a capex of Rs1.2bn during the quarter.
Recent newsflow has been mixed
Lupin has entered into a R&D agreement with Medicis wherein Lupin's proprietary formulation
technologies would be applied to multiple therapeutic compounds. Medicis will have global
exclusive rights (excluding India) for the products developed under the agreement. In return,
Lupin expects to receive a US$20m upfront payment from Medicis and also be eligible for
future research, development, regulatory and other milestones of up to $38 million, as well as
a single digit royalty on sales by Medicis.
Lupin has also settled all ongoing litigations with Medicis over generic versions of Solodyn. As
per the settlement, Lupin is entitled to sell its gSolodyn in 45mg, 90mg, and 135mg strengths
starting November 2011; 65mg and 115mg strengths from February 2018; and 55mg, 80mg
and 105mg strengths from February 2019. While Lupin has not disclosed Solodyn sales,
Medicis had reported sales of US$103.5m in 1QCY11 for its acne products category which
mainly comprises of Solodyn and Ziana.
Launch of AllerNaze has further got delayed and is now expected to happen in FY13.
In the lucrative oral contraceptives category, management now expects only a few approvals
in 2H with approvals for the complete basket now pushed back to FY13
Limited upside on current valuations; more details awaited from analyst call
Our TP Rs465 is derived by valuing Lupin's core business at Rs458 (FY12F PE of 20.4x,
applying a 5% discount to sector) and its Para-IV pipeline at Rs7ps (post 20% execution risk
discount).
On our current forecasts and target price, we see limited upside.
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