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Lupin: Growth across geographies - Views on News from Equitymaster
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Lupin: Growth across geographies
May 15, 2009

Performance summary
  • Topline grows by a robust 34% YoY during FY09 led by growth across geographies.
  • Operating margins reduce by 2.4% during the year due to a considerable rise in purchase of traded goods and staff costs (as percentage of sales).
  • Net profits grow by 23% YoY and are higher than the growth in operating profits due to lower tax expenses.
  • The Board recommends a dividend of Rs 12.5 per share (dividend yield of 1.6%).


Financial performance: Consolidated snapshot
(Rs m) 4QFY08 4QFY09 Change FY08 FY09 Change
Net sales 7,748 10,687 37.9% 28,917 38,666 33.7%
Expenditure 6,307 8,544 35.5% 22,705 31,274 37.7%
Operating profit (EBIDTA) 1,442 2,143 48.7% 6,212 7,393 19.0%
Operating profit margin (%) 18.6% 20.1% 21.5% 19.1%
Other income 83 5 -94.5% 211 46 -78.2%
Interest (net) 104 124 19.6% 374 499 33.5%
Depreciation 206 266 29.6% 648 880 35.8%
Profit before tax 1,216 1,758 44.6% 5,402 6,060 12.2%
Tax 255 139 -45.3% 1,318 983 -25.4%
Minority interest 2 28 1 29
Share of loss in associates 0 17 0 33
Profit after tax 959 1,574 64.2% 4,082 5,015 22.9%
Net profit margin (%) 12.4% 14.7% 14.1% 13.0%
No. of shares (m) 82.1 82.8
Diluted earnings per share (Rs) 60.6
P/E ratio (x) 12.5

What has driven performance in FY09?
  • Lupinís revenues grew by a healthy 34% YoY during FY09 led by growth across geographies. The companyís US business reported an impressive 74% YoY growth during the year and was driven by both its generics and branded generics business. The latter contributed 27% to Lupinís overall US sales. Besides launching a product from its branded generics business, Lupin also launched 4 more products during the year. This has effectively taken the total number of Lupinís products in the US market to 22, out of which the company is the market leader in 8 of them. The company strengthened its presence in the European region by completing the acquisition of the German generics company Hormosan, through which it also bagged the AOK tender for the product ĎSertralineí to be supplied in all 5 regions of Germany. Thus, the overall sales to the advanced markets of US and Europe registered a 70% YoY growth.

  • Lupinís revenues from the domestic business grew by 25% YoY and were driven by growth in the therapeutic areas of CVS, diabetes, CNS, asthma and gastrointestinal. Lupin maintained its leadership in the anti-TB segment and secured a double-digit market share in the anti-asthma segment backed by the strength of its offerings. Kyowa, the companyís subsidiary in Japan, registered a growth of 21% YoY in FY09 and now contributes around 12% to Lupinís overall formulation sales.

  • During FY09, Lupinís operating margins reduced by 2.4% due to a considerable rise in purchase of traded goods and staff costs (as percentage of sales). While purchase of traded goods (as percentage of sales) increased from 12.4% in FY08 to 15.2% in FY09, staff costs increased to 12.6% (10.6% in FY08). The rise in the latter could be attributed to the VRS scheme that the company had undertaken during the year. Net profits grew by 23% YoY and were higher than the growth in operating profits due to lower tax expenses.

What to expect?
At the current price of Rs 758, the stock is trading at a multiple of 13 times our estimated FY11 earnings. Going forward, we expect Lupinís growth to be driven by increasing scale of its US and European generics business as well as exports to the markets of Japan and South Africa. Besides this, the companyís strong presence in the cephalosporins (anti-infectives) and anti-TB space gives it an edge over its peers. The company has done considerably better than our estimates and we shall have to upgrade our numbers for the full year accordingly. We shall soon update our research report on the company.

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