LUPIN – Needs More, HOLD TP INR722, 2.5% Price & Market Cap data downside from CMP of INR740. It was an outstanding FY 2013 for Lupin, as US sales grew ~35% to USD693 million driven by (a) Tricor launch, (b) Suprax sales (due to an intense flu season) and (c) strong currency gains. However, (a) declining Tricor sales due to entry of more players, (b) erosion in Antara sales, (c) a high Suprax base and (d) uncertainty on Yasmin/ Yaz launches, Lupin badly needs at least 2-3 big US launches to deliver 20%+ growth. India slowdown adds to further challenge. While, we believe, Lupin is one of the strongest models in Price chart versus Sensex the space, near-term upsides may be limited after the recent run-up. We downgrade stock to HOLD, with a price target of INR722 representing around 2.5% downside from CMP of INR740. Nice set of numbers
Lupin’s revenues grew approximately 35% to INR25.9 billion, exceeding ours
and street’s expectations. Gross margins improved 500-510 bps leading to
610-620 bps improvement in EBITDA margins. Tax also came in lower,
leading to approximately 170% growth in profit after tax. The company has
expensed off the residual value of INR736m in the quarter pertaining to
Intellectual Property (IP) of Antara as the generic version has been launched.
Broad based growth Shareholding Structure :
Revenue growth was largely broad based with robust performance across
Mar-13 Dec-12 Sep-12
segments. US grew approximately 35% to USD200 million largely driven by
Tricor, which we estimate to have reported revenue in the range of USD45-
50 million. To add further, domestic formulations also grew a robust 45% due
to lo base. Emerging markets grew at 50% with modest growth in Japan at
100.0% 100.0% 100.0% No rush for an acquisition
Suprax remains the key driver for US branded generics. Other brands,
Upcoming Investors Events:
especially Antara, face competition from generic entry; revenue growth from
AeroChamber in the low teens has been a disappointment; and Allernaze is
yet to overcome its manufacturing challenges. With no acquisition, we believe branded US sales will remain flat over FY14-FY15.
Financials (Rs in Million) and Multiples For any further queries please contact: Tarun Arora, C.A Ph No. +91-993-084-0634 Source: Company data, Dreams Broking Research
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Snapshot – 4Q13 Results Exhibit 1 : 4Q13 Profit and Loss Account (Rs in Million) Year End March Delta Remarks Rs in Million Gross Profit Gross Margin EBITDA Margin
Ahead of estimates due to Antara charge
Rs.350 million higher due to IP revenues
Profit Before Tax Profit After Tax Source: Company data, Dreams Broking Research Snapshot – 4Q13 Results Exhibit 2 : Profit and Loss Account (Rs in Million) Year End March Rs in Million EBITDA Margin EBIT Margin Profit before tax Net Profit Source: Company data, Dreams Broking Research Exhibit 3 : Balance Sheet (Rs in Million) Year End March Rs in Million Total Assets Total Shareholders' Equity Total Liabilities Source: Company data, Dreams Broking Research Exhibit 4 : Balance Sheet (Rs in Million) Year End March Rs in Million Operating Cash Flow FCF Pre Dividend FCF Post Dividend Cash Inflow / (Outflow) Source: Company data, Dreams Broking Research Valuation (HOLD, Target Price INR722) Our price target of INR722 is based on DCF valuation. At current price LUPIN trades at 21.3x 2014E P/E. Exhibit 5 : Valuation FCF to Firm FCF to Equity 40,983 359,500 Growth Rate PV Factor PV of FCF to equity Market Cap Target Price Upside / (Downside) Source: Company data, Bloomberg, Dreams Broking Research Appendix -1 Company Description Lupin Limited is a transnational pharmaceutical Company. The Company is engaged in producing a range of generic and branded formulations and bulk drugs. It manufactures Active Pharmaceutical Ingredients (APIs) and several drug formulations. Its product basket consists of formulations from Cephalosporins, CVS, CNS, Anti-Asthma, Anti-TB, Diabetology, Dermatology, GI, and other therapy segments. Its APIs products include Cephalexin, Cefaclor, Cefadroxil, Cefprozil, Rifaximin, Ethambutol, Pyrazinamide, Rifampicin, Rifabutin, Lisinopril, Simvastatin, Prasugrel, Levetiracetam, Lacosamide, Eslicarbazepine Acetate, Rasagiline Mesylate, Pregabalin, Flupirtine Maleate and Febuxostat. As on March 31, 2012, the Company had 19 subsidiaries. During the year ended March 31, 2012, the Company, through its wholly owned subsidiary Lupin Holdings B.V., Netherlands (LHBV), acquired 100% interest in subsidiaries, which includes Hormosan Pharma GmbH, Lupin Philippines Inc. and Lupin Mexico SA de CV. Sector View
Regulated markets would remain the key sales and profit drivers in the medium term. Japan is expected to emerge as the next growth driver, particularly for companies with a direct marketing presence. We are overweight on companies that are towards the end of the investment phase, with benefits expected to start from the next fiscal.
Investment Arguments In the process of building a strong pipeline for the US market through aggressive filings, benefits expected to flow over the next couple of years. Strategy of focusing on niche, low-competition products for the US market likely to benefit in the long run. Investment Risks
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