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Lupin: Year ends on a weak note - Views on News from Equitymaster
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Lupin: Year ends on a weak note
May 19, 2015

Lupin has announced its 4QFY15 results. The company has reported flattish growth of 0.1% YoY in sales and a decline of 1.1%YoY in net profits. Here is our analysis of the results.

Performance summary
  • Topline, including other operating income, is down by 1.4% YoY. The company's net sales witness flat growth, on the back of poor performance of export formulations.
  • The operating margins are down by 2.5% during the quarter. This is largely attributable to poor sales growth and product mix.
  • Subsequently, the bottom line too declines by 1.1% YoY.

Financial performance: A snapshot
(Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
Net sales 30,515 30,540 0.1% 110,867 125,997 13.6%
other operating income 690 241 -65.1% 1,999 1,703 -14.8%
Expenditure 22,436 22,887 2.0% 83,383 91,505 9.7%
Operating profit (EBDITA) 8,769 7,894 -10.0% 29,482 36,194 22.8%
EBDITA margin (%) 28.1% 25.6%   26.1% 28.3%  
Other income 52 172 230.8% 1,711 2,398 40.1%
Interest (net) 122 25 -79.5% 267 98 -63.3%
Depreciation 743     1,071 44.1%       2,610       4,347 66.5%
Profit before tax 7,956 6,970 -12.4% 28,317 34,147 20.6%
Minority Interest 100 137 37.0% 331 411 24.2%
Tax 2,326 1,363 -41.4% 9,622 9,704 0.9%
Profit after tax/(loss) 5,530 5,470 -1.1% 18,364 24,032 30.9%
Net profit margin (%) 18.1% 17.9%   16.6% 19.1%  
No. of shares (m)         447.1  
Diluted earnings per share (Rs)         53.8  
Price to earnings ratio (x)*         32.2  
*based on trailing 12 months earnings

What has driven performance in 4QFY15?
  • Topline (including other operating income) grew by 1.4% YoY during the quarter. The other operating income was down by 65.1% YoY.

    Business Mix
    (Rs m) 4QFY14 4QFY15 Change FY14 FY15 Change
    Domestic Formulations 5,763 6,637 15.2% 24,795 29,679 19.7%
    (% of revenues) 18.9% 21.7%   22.4% 23.6%  
    Export Formulations 21,838 20,828 -4.6% 74,931 84,377 12.6%
    (% of revenues) 71.6% 68.2%   67.6% 67.0%  
    API 2,914 3,075 5.5% 11,140 11,941 7.2%
    (% of revenues) 9.5% 10.1%   10.0% 9.5%  
    Total 30,515 30,540 0.1% 110,866 125,997 13.6%

  • The domestic segment witnessed healthy growth of 15.2% YoY for the quarter. However, the export formulations business declined by 4.6% YoY. The US business declined during the quarter, and de-grew by 6% YoY. In dollar terms, the growth was down by 14.2% YoY for the quarter. Further, even Japan and Rest of the World markets displayed poor performance. The growth declined by 9% YoY and 3% YoY respectively. Lupin launched three products in US during the quarter taking the total number of launches to 12 for FY15. However, the approval rate in US is still at a slower pace, which is the key reason for muted sales. For upcoming couple of quarters, sales growth sales growth in US is expected to remain under pressure on back of lower approvals.

  • FY14 was a robust year for the company. Rupee depreciation and lucrative launches in US helped the company's overall performance. However, FY15 did not witness any key launches, this in turn impacted the overall performance. On the operating front, the margins witnessed sharp decline during the quarter. The margins were impacted due to higher R&D costs.

  • The bottom line too declined due to overall poor performance. However, the extent of decline was lower than that in operating profits. This is because of the fall in tax expenses. The tax rate for the quarter was at 20%, which is much below the company's tax rate. For the full year, the company had guided for taxes at approx 33%-35%, whereas the tax rate for FY15 was 28%. This too helped the bottom line to some extent.
What to expect?
At the current price of Rs 1,729 the stock is trading at a price to earnings multiple of 22.7 times our estimated FY17earnings. Lupin has sizeable revenues coming from US and India so far, and hence the company's overall performance is largely dependent on the growth in these geographies. Even Japan will be an important growth driver in the long run. In the US, the company has made various lucrative filings, however timely approval will be an important aspect here. These launches will be an important growth driver for the company. Having said that, the increasing issues from USFDA can impact the launches as seen in the current quarter.

While the company's prospects look good, the current valuations do not leave any room to invest in the stock at the current levels.

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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