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Lupin: US & India fuel growth - Views on News from Equitymaster
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Lupin: US & India fuel growth
May 9, 2013

Lupin has announced its 4QFY13 results. The company has reported 35% YoY growth in sales and 162%YoY growth in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 35% YoY during the quarter largely led by robust exports and domestic sales.
  • Operating margins improve by 6.1% to 25.5% in 4QFY13, resulting in the 76.7% YoY growth in operating profits.
  • Bottomline surges by 162% YoY helped by decline in tax expenses by 20%.

Financial performance: A snapshot
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 18,832 25,374 34.7% 69,597 94,616 35.9%
Operating income 407 485 19.1% 1,232 1,797 45.8%
Expenditure 15,510 19,271 24.2% 56,382 73,713 30.7%
Operating profit (EBDITA) 3,728 6,587 76.7% 14,447 22,700 57.1%
EBDITA margin (%) 19.4% 25.5%   20.4% 23.5%  
Other income 82 62 -24.5% 144 279 94.1%
Interest (net) 145 133 -8.7% 355 410 15.6%
Depreciation 706 1,290 82.8% 2,275 3,322 46.0%
Profit before tax 2,960 5,227 76.6% 11,961 19,246 60.9%
Minority Interest 55 66 20.2% 199 263 32.3%
Tax 1,348 1,080 -19.9% 3,086 5,842 89.3%
Profit after tax/(loss) 1,557 4,081 162.1% 8,676 13,142 51.5%
Net profit margin (%) 8.3% 16.1%   12.5% 13.9%  
No. of shares (m)         447.1  
Diluted earnings per share (Rs)         29.4  
Price to earnings ratio (x)*         24.8  
*based on trailing 12 months earnings

What has driven performance in 4QFY13?
  • Topline grew by 35% YoY during the quarter largely led by robust exports and domestic sales.

    Business mix
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
    Domestic formulations 3,966 5,659 42.7% 19,058 23,644 24.1%
    (% of revenues) 21.1% 22.3%   28.2% 25.0%  
    Export formulations 12,660 17,279 36.5% 40,048 61,474 53.5%
    (% of  revenues) 67.2% 68.1%   59.2% 65.0%  
    API 2,206 2,436 10.4% 8,491 9,498 11.9%
    (% of  revenues) 11.7% 9.6%   12.6% 10.0%  
    Total 18,832 25,374   67,597 94,616  

  • The domestic segment witnessed robust growth of ~43% YoY for 4QFY13 led by the CVS and Diabetes segments. In 3QFY13, there some problems in the supply chain which had impacted the growth in that quarter. Further there were some productivity issues also. However these issues were now resolved. The company is ranked 3rd in the CVS market and 7th in the Diabetes segment.

  • On the international front, the company witnessed robust growth of ~37% YoY in its export formulations for the quarter. US was the biggest contributor to this growth (up by ~52% YoY) during the quarter. In constant currency terms too, the growth was robust at ~33% YoY. These revenues also include non-recurring component of IP income. Lupin had launched 4 new products during the quarter. The Generics segment witnessed robust growth on the back of ramp up in sales of low competition products like Tricor and Fortament. The US branded formulations contributed ~21% to total US sales at $43 m for the quarter and witnessed double digit growth on back of a strong season. The sales of Antara brand were impacted as generics were launched during the quarter. However the Suprax brand witnessed better growth on the back of a better season.

  • Europe registered robust growth of 45% YoY for the quarter. Japan witnessed poor growth of 2% YoY during the quarter. However, in constant currency terms, growth was better at 9% YoY for the said period. During the year, Lupin got 3 approvals from Goa facility to supply products in Japan. As per the management the facility at Japan is running at 100% capacity. Gradually, the company will get more approvals from the Indian facility and this will help in margin improvement. South Africa witnessed ~29% YoY growth for the quarter and RoW grew by 35% YoY during the same period.

  • Operating margins improved by 6.1% to 25.5% in 4QFY13, resulting in the 76.7% YoY growth in operating profits. Better margins were realized on back of better product mix. Large part of this improvement was due to ramp up in the low competition products viz., Tricor and Fortamet. This helped in lower material costs and thus better margins. In addition to this, robust growth in the domestic segment has also been attributed to the improvement in margins. Going forward, the company expects margins to improve, however we remain cautious as improvement is also due to favorable rupee dollar exchange rate.

  • Bottomline growth was at 162% YoY and was helped by a 20% YoY decline in tax expenses. However, depreciation during the quarter surged by 83% due to charge off the residual value of Rs 736 m on Antara brand, as generics entered the market during the quarter. Excluding this impact, the bottomline growth is approximately 209% YoY for the said period.

    Takeaways from the analyst meet

  • Suprax: The product has witnessed good growth during the quarter.

  • Antara (Fenofibrate): As generics were launched during the quarter, the company has taken write off Rs 736 m included in the depreciation expenses.

  • Current filings and launch status in US: During FY12, the company had guided for 120 drug launches over 3 years. However in FY13, the company launched just 10 products. As per the management, the company has made required filings and is awaiting approvals from USFDA. Thus the stated time line of 120 launches in 3 years might not be on time and may take additional 6 -12 months to make all 120 launches. For FY14, company has guided for launch of 15-18 products. Lupin filed 8 ANDAs and received 10 approvals from the USFDA during the quarter. During the year, the company filed 21 ANDAs and received 14 approvals. Cumulative ANDA filings with the US FDA as of March 31st, 2013 stood at 176 with 98 pending approvals. Approx 25 products are FTF (First to File) of which 8-9 products are exclusive FTFs (meaning Lupin is the sole FTF holder).

What to expect?
At the current price of Rs 730 the stock is trading at a price to earnings multiple of 17 times our estimated FY15 earnings. Lupin's growth going forward will be driven by new launches in US segment and healthy growth in the domestic market. We believe Japan to be an important growth driver in long run. However increasing competition in global generics, penetration in oral contraceptive space and higher tax rate raises concerns. Over and above the company's revenues are exposed to the dollar. Currently, the dollar has appreciated and hence has helped growth. However, things may change going forward and hence the company's revenues remain exposed to currency risk. Keeping in mind all these factors, we recommend investors to Hold on to the stock.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

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