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Lupin: Modest growth and reduced margins - Views on News from Equitymaster

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Lupin: Modest growth and reduced margins

May 13, 2011

Lupin has announced its 4QFY11 results. The company has reported 17.0% YoY and 3.0% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Sales grow by 17.0% YoY to Rs 15,536 m during 4QFY11 led by the growth in emerging market sales including India.
  • Operating margins contract by 2% (as a % of sales) to 20.0% during 4QFY11 due to the increase in raw material prices and employee costs.
  • Porfit after tax grow by mere 3.0% YoY led by decrease in the operating margins and fall in other income
  • Board recommends a 150% dividend of Rs 3 per share for the year (dividend yield of 0.7%).

    Financial performance: A snapshot
    (Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
    Net sales 13,282 15,536 17.0% 48,708 58,320 19.7%
    Expenditure 10,358 12,428 20.0% 38,869 46,410 19.4%
    Operating profit (EBDITA) 2,924 3,108 6.3% 9,839 11,911 21.1%
    EBDITA margin (%) 22.0% 20.0%   20.2% 20.4%  
    Other income 105 32.8 -68.8% 142 89 -37.3%
    Interest (net) 77.9 78 0.1% 384.9 324.6 -15.7%
    Depreciation 407.8 462.9 13.5% 1,239 1,712 38.1%
    Profit before tax 2,543 2,600 2.2% 8,357 9,963 19.2%
    Tax 293 312 6.5% 1,360 1,169 -14.0%
    Minority interest 45 16   180 168  
    Profit after tax/(loss) 2,206 2,272 3.0% 6,816 8,626 26.5%
    Net profit margin (%) 16.6% 14.6%   14.0% 14.8%  
    No. of shares (m)         445.7  
    Diluted earnings per share (Rs) 5.1 5.1   19.3 15.6  
    Price to earnings ratio (x)         26.5  

    What has driven performance in FY11?
    • Lupin's sales reported a growth of 17% YoY during 4QFY10 led by strong growth across all business segments notably the Emerging markets and the US. In the US market especially, the branded generics business grew by 50% making the total contribution from the US markets at 35% of the sales in FY11. This was driven by 50% plus increase in the sales of ‘Suprax'. On the domestic front, the company introduced products on the chronic lifestyle segment and indicated a growth of 20% growth over the next 3 years.

    • Operating margins contracted by 2% (as a % of sales) to 20% on account of higher raw material cost and employee cost. The raw material cost increased by 2.8% (as a % of sales) to 39.6% with regards to upward pressure on the chemical solvents. As is the industry wide phenomena, the employee cost also increased. R&D expenses are also higher and stands at 9.5% of total full year sales.

    • Profit after tax grew by mere 3.0% YoY because of fall in other income and increase in depreciation. The depreciation expense increased by 13% plus hinting capacity expansion that will assist the company for future growth.

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