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Lupin (LPC)
Pharmaceuticals
Sequential margin improvement, a welcome surprise. PAT ex-forex beat our
estimates by 7% with strong performance in India and sequential margin improvement;
however, US generic sales disappoint, showing no increase sequentially. This and higher
tax rates are the main reasons for our 4% cut in FY2013E EPS. We believe FY2013E will
be a blockbuster year for Lupin with date-certain, limited competition launches in US
combined with continued strong growth in India. We rate Lupin as one of our top
sector picks. Retain ADD; TP at Rs520 (was Rs545), 20X FY2013E base business EPS.
Sales at Rs18 bn was up 22% yoy, largely in line with our estimates
Sales grew 22% yoy to Rs18 bn, largely in line with our estimates—(1) India (31% of sales) grew
30% yoy and 23% organically versus our estimate of 18%, (2) US (35% of sales) grew 23% yoy in
Rupee terms and 12% in Dollar terms, 10% lower than our estimates. The US generic business did
not show any sequential increase in sales in Dollar terms whereas we had built in US$6 mn qoq
increase in sales. While branded business increased by 18% in US$ terms, generic business grew
by 9% yoy only, mainly due to the exclusivity sales of Fortamet ER which has since been
discontinued, and (3) Japan grew 43% yoy, 6% higher than our estimates due to I’rom acquisition
consolidation (1-month sales). Excluding this, growth was muted at 8% yoy in Yen terms, lower
than our estimates of 12%.
EBITDA margin surprises at 19.3%, ex-forex margin was at 21%
EBITDA margin came as a surprise and was the main reason for higher PAT versus our estimate.
EBITDA margin was up 200 bps sequentially at 19.3% mainly due to gross margin expansion of
150 bps. Lupin reported around Rs320 mn (versus our estimate of Rs390 mn) MTM forex loss in
other expenses, and adjusting for this, margin was even higher at 21%. The sharp qoq expansion
in gross margin baffles us, especially in light of (1) lower exclusivity sales of Fortamet ER this
quarter and (2) consolidation of the low-margin Japanese business. We maintain our margin
assumption for 4QFY12E at 19.2% ex I’rom sales, with no MTM forex loss included.
Limited competition launches in US + strong growth in India = a blockbuster FY2013E
The higher tax rate (we estimate 20% versus 18% earlier) and lower US generics sales base in
FY2012E are the main reasons for 4% cut in our FY2013E EPS. We believe management
commentary was very bullish, however, we remain cautious due to regulatory status regarding
certain launches in US and limited pick-up in US generics sales this year despite 6 launches in
1HFY12. We expect (1) organic sales growth in India at 18% in FY2013E versus above 20%
indicated by company due to high base and increased competitive intensity, (2) US sales increasing
to US$653 mn in FY2013E from US$489 mn in FY2012E (see exhibits 2-3) and (3) organic growth
of 11% in Japan in FY2013E versus 6-8% in 2Q-3QFY12 as the impact of CY2011 price cuts by
Japan Government diminishes, resulting in volume growth translating to sales growth in FY2013E.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Lupin (LPC)
Pharmaceuticals
Sequential margin improvement, a welcome surprise. PAT ex-forex beat our
estimates by 7% with strong performance in India and sequential margin improvement;
however, US generic sales disappoint, showing no increase sequentially. This and higher
tax rates are the main reasons for our 4% cut in FY2013E EPS. We believe FY2013E will
be a blockbuster year for Lupin with date-certain, limited competition launches in US
combined with continued strong growth in India. We rate Lupin as one of our top
sector picks. Retain ADD; TP at Rs520 (was Rs545), 20X FY2013E base business EPS.
Sales at Rs18 bn was up 22% yoy, largely in line with our estimates
Sales grew 22% yoy to Rs18 bn, largely in line with our estimates—(1) India (31% of sales) grew
30% yoy and 23% organically versus our estimate of 18%, (2) US (35% of sales) grew 23% yoy in
Rupee terms and 12% in Dollar terms, 10% lower than our estimates. The US generic business did
not show any sequential increase in sales in Dollar terms whereas we had built in US$6 mn qoq
increase in sales. While branded business increased by 18% in US$ terms, generic business grew
by 9% yoy only, mainly due to the exclusivity sales of Fortamet ER which has since been
discontinued, and (3) Japan grew 43% yoy, 6% higher than our estimates due to I’rom acquisition
consolidation (1-month sales). Excluding this, growth was muted at 8% yoy in Yen terms, lower
than our estimates of 12%.
EBITDA margin surprises at 19.3%, ex-forex margin was at 21%
EBITDA margin came as a surprise and was the main reason for higher PAT versus our estimate.
EBITDA margin was up 200 bps sequentially at 19.3% mainly due to gross margin expansion of
150 bps. Lupin reported around Rs320 mn (versus our estimate of Rs390 mn) MTM forex loss in
other expenses, and adjusting for this, margin was even higher at 21%. The sharp qoq expansion
in gross margin baffles us, especially in light of (1) lower exclusivity sales of Fortamet ER this
quarter and (2) consolidation of the low-margin Japanese business. We maintain our margin
assumption for 4QFY12E at 19.2% ex I’rom sales, with no MTM forex loss included.
Limited competition launches in US + strong growth in India = a blockbuster FY2013E
The higher tax rate (we estimate 20% versus 18% earlier) and lower US generics sales base in
FY2012E are the main reasons for 4% cut in our FY2013E EPS. We believe management
commentary was very bullish, however, we remain cautious due to regulatory status regarding
certain launches in US and limited pick-up in US generics sales this year despite 6 launches in
1HFY12. We expect (1) organic sales growth in India at 18% in FY2013E versus above 20%
indicated by company due to high base and increased competitive intensity, (2) US sales increasing
to US$653 mn in FY2013E from US$489 mn in FY2012E (see exhibits 2-3) and (3) organic growth
of 11% in Japan in FY2013E versus 6-8% in 2Q-3QFY12 as the impact of CY2011 price cuts by
Japan Government diminishes, resulting in volume growth translating to sales growth in FY2013E.
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