Lupin - Good Quarter; Prepping for Inorganic Forays; Result Update Q3FY15 :: Edelweiss

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Lupin’s (LPC) Q3FY15 earnings were largely in line, despite muted revenue growth, on favourable mix and lower-than-expected costs. US grew mere 4%, but is expected to pick up propelled by anticipated launches (including Nexium). Outlook for FY16 also remains robust with a launch pipeline of 15-20 ANDAs. We believe LPC’s guidance of USD5bn revenue by FY18 (USD2.1bn in FY15E) is achievable, but will entail inorganic moves. Its strategy of acquiring small-sized assets implies multiple acquisitions in a short period from now and could face scouting as well as integration challenges. Valuations at 19x FY17E are attractive.

USD5bn revenue target by FY18; acquisitions core to strategy

LPC indicated that revenue target of USD5bn by FY18 will entail a series of acquisitions of USD1bn revenue in total. Acquisitions will be limited to a ticket size of USD200-300mn. The company continues to scout for inorganic opportunities for geographic expansion and technology platforms. Given the healthy cash flows and comfortable leverage, it will not hurt the balance sheet. However, its multiple acquisitions strategy in such a short period could face scouting as well as integration challenges. 

US: More launches anticipated including Nexium

The company expects 4 launches in Q4FY15 in the US-branded Inspirex, Welchol suspension (FTF) and Vancocin caps. Approval/launch of Nexium also remains a possibility as LPC indicated that it has responded to all related USFDA queries. It is targeting 15-20 launches in FY16 provided USFDA’s approval pace picks up. Namenda, Glumetza, Prevacid ODT, a few oral contraceptives (incl Generess Fe), Detrol LA, etc., are some possible launches. LPC’s nasal spray pipeline is expected to show up in FY17/18 and inhalers by FY19 in the US. With close to 100 ANDAs pending approval and more niche pipeline to follow, we expect strong US business growth to continue.

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https://www.edelweiss.in/research/Lupin--Good-Quarter;-Prepping-for-Inorganic-Forays;-Result-Update-Q3FY15/28232.html