Lupin Ltd. seems to be undergoing a drastic change in its business model. While retaining its focus on the anti-TB segment, the company seems to be making all efforts to become a recognised global player in the Cephalosporin segment and is now considering research as a new thrust area. Strategy for entering the generics business also seems to be in place. The company's business is being restructured to exit competitive segments and enter high margin segments.
The merger with Lupin Chemicals has helped the company catapult into the league of few companies in India with Rs 10 bn plus revenues. Secondly, it has helped the company consolidate its strong position in the anti-TB business. While Lupin Chemicals manufactured Rifampicin, Lupin Labs manufactured Ethambutol. Together both these molecules command almost the entire anti-TB market. The consolidation helped the company in becoming a world leader in the anti-TB market, with a share of more than 40% in the domestic anti-TB market, estimated at Rs 3.3 bn. In a segment, which registered de-growth in last two years, Lupin managed to record a double-digit growth.
The company is also aggressively launching new products to reduce its therapeutic segment dependence. The company has launched new products in cardiovascular, cephalosporin and herbal segments. It has already launched 10 products in the year with plans for another 10 products. Lupin plans to introduce 70-80 products in the span of 3 years, which should reduce its dependence on the anti-TB segment.
Exports currently contribute around 24% of the company's total turnover. Going forward, Cephalosporins would be a key focus area for exports. The company is planning partnership route to enter the generic market by tying up with large generic companies in the US/ Europe. In the generic business, the company has tied up with three generic marketing companies viz, Merck Generics, ABP and Apcotex. Lupin would be supplying bulk Cefuroxime Axetil to Apotex, which is the sole generic competitor to Ranbaxy (at least till mid 2003). It may be recalled that Ranbaxy recently received approval for selling this drug. Apcotex’s approval is expected by July'02. We expect US$ 5 m revenues to Lupin from this agreement.
Though late, Lupin is now recognizing R&D as a thrust area. The company has established state-of-the-art R&D centre spread over an area of 19 acres at Pune at a cost of over Rs 500 m. The research activity of the company is focused in a manner so as to provide solutions to both immediate and post 2005 research requirements. Lupin has 6 molecules in the pipeline both on NCE and NDDS platform. However, all the molecules are in early pre-clinical stages and it would take time (atleast late 2003) before one can expect revenues from out licensing. Lupin plans to launch 4-6 ANDA's for the US markets this year, with a target of creating a product basket of 25 products over 3 years.
Lupin Ltd- Operating Margins show an up trend
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The company has declared marginal sales growth for the nine months ended December' 01. The low growth rate seems to be on the back of the company exiting from low margins (particularly bulk drugs) business. What is encouraging is the rise in operating margins. We expect margins to move up further, as the contribution of exports to total sales improves. Topline is also expected to register respectable growth with the Cephalosporins facility commencing production.
At the current market price of Rs 121, the stock is trading at 6.5x its annualised earnings for 9mFY02. The current acceleration in its research initiatives, sales and margins growth and breakthrough in the generics business are expected to prove as triggers for the stock in the near term. The stock is also attractively priced when compared to its peers. However, a high debt equity ratio of the company remains an area of concern.
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