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Lupin: US leaves its mark

May 6, 2010

Lupin has announced its FY10 results. The company has reported 26% YoY and 36% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 26% YoY during FY10 led by growth across all business segments notably the US.
  • Operating margins expand by 1.1% during the year due to a fall in raw material and staff costs (as percentage of sales).
  • Led by the strong growth in operating profits and lower interest costs, net profits grow by 36% YoY.
  • Board recommends a dividend of Rs 13.5 per share for the year (dividend yield of 1%).
  • Board also approves a stock split of equity shares of the face value of Rs 10 each to shares with face value of Rs 2 each.

Financial performance: Consolidated snapshot
(Rs m) 4QFY09 4QFY10 Change FY09 FY10 Change
Net sales 10,687 13,282 24.3% 38,666 48,708 26.0%
Expenditure 8,544 10,358 21.2% 31,274 38,869 24.3%
Operating profit (EBIDTA) 2,143 2,924 36.4% 7,393 9,839 33.1%
Operating profit margin (%) 20.1% 22.0%   19.1% 20.2%  
Other income 5 105 2182.6% 46 142 208.0%
Interest (net) 124 78 -37.1% 499 385 -22.8%
Depreciation 266 408 53.1% 880 1,239 40.8%
Profit before tax 1,758 2,543 44.7% 6,060 8,357 37.9%
Tax 139 293 110.0% 983 1,360 38.4%
Minority interest 28 24 -15.1% 29 112 290.2%
Share of loss in associates 17 21 27.3% 33 69 106.0%
Profit after tax 1,574 2,206 40.2% 5,015 6,816 35.9%
Net profit margin (%) 14.7% 16.6%   13.0% 14.0%  
No. of shares (m)       82.8 88.9  
Diluted earnings per share (Rs)         76.6  
P/E ratio (x)         23.4  

What has driven performance in FY10?
  • Lupinís revenues grew by a healthy 26% YoY during FY10 led by strong growth across all business segments notably the US. Formulation sales from the US registered a robust 39% YoY growth. In the US market especially, the branded generics business grew by a dazzling 72% YoY and this business now accounts for 37% of the overall sales in the US. The year also saw Lupin extend its branded product portfolio with the acquisition of ĎAllerNazeí (an intra-nasal steroid) and ĎAntaraí (an anti-cholesterol drug). Lupin was also able to grow its generics business in the market during the year. Lupin now has 25 products in the US market, out of which the company is the market leader in 12 of them. The company filed 37 ANDAs during FY10. 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 18% YoY and were driven by growth in the therapeutic areas of CVS, diabetes, CNS, asthma and gastrointestinal. This business contributed 28% to overall sales during year. Kyowa, the companyís subsidiary in Japan, registered a growth of 21% YoY in FY10 and now contributes around 11% to Lupinís overall formulation sales. Further, Lupinís South African business registered a 57% YoY growth in sales.

  • During FY10, Lupinís operating margins improved by 1.1% due to a fall in raw material costs and staff costs (as percentage of sales). Raw material costs fell from 41.5% of sales in FY09 to 40.4% in FY10. Led by the strong 33% YoY growth in operating profits and lower interest costs, net profits grew by 36% YoY. For the fourth quarter, while operating profits grew by 36% YoY, net profits registered a growth of 40% YoY.

What to expect?
At the current price of Rs 1,796, the stock is trading at a multiple of 17.5 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. The company has done better than our estimates and we shall have to upgrade our numbers for the full year accordingly. We shall soon update our research on the company.

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