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Lupin: Higher tax impacts profits
May 15, 2012

Lupin announced fourth quarter results of financial year 2011-2012 (4QFY12). The company reported a 25% YoY growth in sales, while net profits fell by 32% YoY. Here is our analysis of the results.

Performance Summary
  • Topline grows by 25% YoY during 4QFY12 led by growth across all business segments.
  • Operating margins improve by 0.1% during the quarter due to lower raw material costs and other expenditure (as percentage of sales).
  • Bottomline falls by 31.5% YoY during the quarter on account of a surge in tax expenses.


Financial performance: Consolidated snapshot
(Rs m) 4QFY11 4QFY12 Change FY11 FY12 Change
Net sales 15,405 19,239 24.9% 58,190 70,829 21.7%
Expenditure 12,428 15,510 24.8% 46,411 56,382 21.5%
Operating profit (EBIDTA) 2,977 3,728 25.2% 11,778 14,447 22.7%
Operating profit margin (%) 19.3% 19.4%   20.2% 20.4%  
Other income 163 82 -49.5% 222 144 -35.3%
Interest (net) 78 145 86.0% 345 355 2.9%
Depreciation 463 706 52.5% 1,712 2,275 32.9%
Profit before tax 2,600 2,960 13.9% 9,944 11,961 20.3%
Tax 312 1,348 332.6% 1,150 3,086 168.4%
Minority interest 16 56 246.9% 148 199 33.8%
Share of loss in associates - -   20 -  
Profit after tax 2,272 1,556 -31.5% 8,626 8,677 0.6%
Net profit margin (%) 14.7% 8.1%   14.8% 12.2%  
No. of shares (m)         446.7  
Diluted earnings per share (Rs)*         19.4  
P/E ratio (x)         27.6  

What has driven performance in FY12?
  • Revenues of Lupin grew by a healthy 22% YoY during FY12 led by growth across all business segments. The US business grew by 22% YoY during the year. In the US market, sales of the branded business were led by 'Suprax' with tablets and suspension growing by 30% YoY and 17% YoY respectively. Having said that, the brand 'Antara' saw sales decline by 6.3% YoY. As far as the generic business is concerned, the company launched 12 new products during the year, which contributed 18% to sales. The company now has a portfolio of 42 products. Besides this, the company's cumulative ANDA filings at the end of the year stood at 173 of which 64 have been approved by the US FDA. The number of ANDA approvals during the year stood at 16. The European business grew by 9% YoY during the year and was led by 13 new product launches and 15 products in-licensed in Germany. Japan grew by a healthy 38% YoY led by the company's strong presence in the central nervous system (CNS), cardiovascular (CVS), respiratory, allergies and gastro-intestinal therapeutic areas. The company also acquired l'rom Pharmaceuticals to enter the US$ 9 bn DPC (diagnosis procedure combination) hospital market in the country.

  • Lupin's revenues from the domestic business grew by 23% YoY and were driven by growth in the therapeutic areas of CVS, diabetes, asthma and anti-infectives. 30 new products were launched during the year. Besides this, it has also been focusing on the more profitable chronic therapy segments and these along with semi-chronic therapies now account for around 54% of the domestic portfolio.

  • During FY12, Lupin's operating margins improved marginally by 0.2% due to lower raw material costs (as percentage of sales). Net profits grew by a mere 1% during the year on account of a substantial increase in tax expenses. These increased because the company's plants at Goa and Mandideep no longer enjoy the EoU status.

What to expect?
At the current price of Rs 537, the stock is trading at a multiple of 16.1 times our estimated FY14 earnings. Going forward, we expect Lupin's growth to be driven by increasing scale of its US business and the other geographies that the company has ventured into, namely Europe, Africa and Japan. In the highly competitive US generics market, the company intends to launch upwards of 120 products over the next three years, which address a market of US$ 48 bn in brand revenue.

As far as Japan is concerned, the company has 11 products available for launch next year and intends to focus on ramping up field force, improving product mix and strengthening is presence in the hospital segment. We also expect a modest improvement in operating margins going forward with the increase in capacity utilization on back of sales growth. Overall, the company is on a strong track. We shall soon update our research report on the company.

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