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Lupin: US leads the way - Views on News from Equitymaster
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Lupin: US leads the way
Feb 5, 2010

Performance summary
  • Topline grows by 29% YoY during 3QFY10 led by growth across all business segments notably the US.
  • Operating margins expand by 2.7% during the quarter due to a substantial fall in other expenditure (as percentage of sales).
  • Led by the strong growth in operating profits and lower interest costs, net profits grow by 38% YoY.


Financial performance: Consolidated snapshot
(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mFY10 Change
Net sales 9,837 12,708 29.2% 27,980 35,371 26.4%
Expenditure 8,079 10,090 24.9% 22,730 28,511 25.4%
Operating profit (EBIDTA) 1,758 2,618 48.9% 5,250 6,859 30.7%
Operating profit margin (%) 17.9% 20.6%   18.8% 19.4%  
Other income 3 2 -46.7% 42 93 122.9%
Interest (net) 146 109 -25.4% 375 307 -18.1%
Depreciation 219 358 63.4% 614 831 35.5%
Profit before tax 1,396 2,152 54.1% 4,303 5,814 35.1%
Tax 219 504 130.6% 844 1,068 26.5%
Minority interest (0) 30   1 88  
Share of loss in associates 13 13   17 48  
Profit after tax 1,165 1,606 37.9% 3,442 4,610 34.0%
Net profit margin (%) 11.8% 12.6%   12.3% 13.0%  
No. of shares (m)       82.1 83.2  
Diluted earnings per share (Rs)         74.4  
P/E ratio (x)         20.6  

What has driven performance in 3QFY10?
  • Lupinís revenues grew by a healthy 29% YoY during 3QFY10 led by strong growth across all business segments notably the US. Formulation sales from the US registered a robust 51% YoY growth. In the US market especially, the branded generics business grew by a dazzling 76% YoY. The quarter also saw Lupin launching the cholesterol drug ĎAntaraí, which the company had acquired from Oscient Pharmaceuticals for around US$ 38.6 m in 2QFY10. This drug also contributed to the robust growth of the branded generics business. The US generics business grew by 15% YoY during the quarter and was impacted to some extent by the delay in product approvals. Lupin now has 23 products in the US market, out of which the company is the market leader in 10 of them. The company filed 15 ANDAs during 9mFY10 taking the total cumulative filings till date to 105, out of which 35 have been approved so far by the US FDA. Further, the companyís manufacturing facility at Mandideep, which came under the US FDA scanner, was cleared by the US regulator after re-inspection which was a positive development.

  • Lupinís revenues from the domestic business grew by 21% YoY and were driven by growth in the therapeutic areas of CVS, diabetes, CNS, asthma and gastrointestinal. This business contributed 27% to overall sales during the third quarter. Kyowa, the companyís subsidiary in Japan, registered a growth of 13% YoY in 3QFY10 and now contributes around 12% to Lupinís overall formulation sales. Further, Lupinís South African business registered a 66% YoY growth in sales.

  • During 3QFY10, Lupinís operating margins improved by 2.7% due to a substantial fall in other expenditure (as percentage of sales) from 30.7% in 3QFY09 to 27.1% in 3QFY10. Led by the strong 49% YoY growth in operating profits and lower interest costs, net profits grew by 38% YoY. However, this growth was lower than the growth in operating profits due to considerably higher tax expenses. For the nine month period, while operating profits grew by 31% YoY, net profits registered a growth of 34% YoY.

What to expect?
At the current price of Rs 1,530, the stock is trading at a multiple of 15 times our estimated FY12 earnings. Going forward, we expect Lupinís growth to be driven by increasing scale of its US generics business and the other geographies that the company has ventured into, namely Europe, Africa, Asia and Australia. In the highly competitive US generics market, its strategy of focusing on branded generics gives it an edge over other domestic players in the pharma sector. There are already some branded generics product launches scheduled in the coming quarters which will bolster US sales further. At the same time, Lupinís facilities in Aurangabad and Indore underwent successful inspections bringing it one step closer to launching liquids and oral contraceptives in the US; another area where the competition is likely to be lesser. We also expect an improvement in operating margins going forward led by focus on niche products and increasing proportion of formulations to total sales. Overall, while we are positive on the growth prospects of the company, current valuations do not leave much on the table for investors.

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