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Lupin: Generics booster

May 21, 2002

Lupin Ltd. has ended FY02 with 6% growth in sales and an encouraging 48% jump in PBT. Net profit however, grew by 20% on account of new accounting policy on deferred taxation. The growth in sales was fuelled by higher export growth. Operating margins jumped by more than 310 basis points. During the year, the company initiated several measures to achieve roboust growth in exports and push R&D as a key area of growth, going forward.

(Rs m) FY01 FY02 % Change
Sales 9,029 9,569 6.0%
Other Income 86 85 -1.6%
Expenditure 7,682 7,836 2.0%
Operating Profit (EBDIT) 1,347 1,733 28.7%
Operating Profit Margin (%) 14.9% 18.1%  
Interest 597 622 4.2%
Depreciation 185 232 25.1%
Profit before Tax 650 964 48.2%
Tax 50 242 384.0%
Profit after Tax/(Loss) 600 722 20.3%
Net profit margin (%) 6.6% 7.5%  
No. of Shares (m) 40.1 40.1  
Diluted Earnings per share 15.0 17.7  
P/E (at current price) 6.1  

The highlight of the results was a 34% rise in exports on the back of a sharp rise in contribution from generics exports to US and European markets, which increased by more than 6 fold. Formulations business recorded a growth of 3%. While export formulations registered a drop of more than 44% (though on a smaller base), domestic formulations growth was 6%. Domestic formulations sales were affected by downward revision in prices of rifampicin formulations on account of the new DPCO order.

Particulars FY01 FY02 % Change
Generics 93 728 680.2%
API/ Bulk Drugs 4,718 4,488 -4.9%
Formulations 4,163 4,283 2.9%
Others 54 70 27.9%
  9,029 9,569 6.0%

The company launched several new products during the year particularly in the cardiovascular, cephalosporins and anti-TB segments. In the Cephalosporin segment, the company is steadily consolidating market share with the introduction of new products at the same time focusing upon its current product portfolio. The cephalosporin segment registered a growth of around 8% during the year. It has launched 15 products during the year. Lupin plans to introduce 70-80 products in the span of 3 years, which should reduce its dependence on the anti-TB segment. With new product launches, the cardiovascular segment registered a 50% growth over the last year.

Exports now contribute around 32% (up from 24% for 9m FY02) to the company's total turnover. Going forward, cephalosporins would be a key focus area for exports. The company intends to explore the partnership route to enter the generic market by tieing up with large generic companies in the US. In the generic business, the company has tied up with three generic marketing companies viz, Merck Generics, ABP and Apcotex. Lupin has already started supplying Cefotaxime and Cefuroxime Axetil in the API form to its marketing alliance in the US. Currently, Ranbaxy has marketing exclusivity for Cefuroxime Axetil in the US and Apcotex, Lupin's partner is expected to start marketing the drug by July'02 this year. At least till mid 2003, Apcotex is expected to be the sole generic competitor to Ranbaxy and thus, the order size for bulk Cefuroxime is expected to provide significant contribution to Lupin in the current year.

The company has applied for 2 ANDA's (Abbreviated New Drug Application) with the US FDA for Ceftriaxone injection and Cefotaxime injection and it claims to have 'first to file' status on the former. Lupin plans to file 6-7 ANDA's for the US markets this year, with a target of creating a product basket of 25 products over 3 years.

Lupin has now recognized R&D as a key thrust area. The company has established a state-of-the-art R&D centre spread over an area of 19 acres at Pune. The research activity of the company is focused in such a manner to provide solutions to both immediate and post 2005 research requirements. The company now spends almost 5% of its total revenues on research. Lupin has 6 molecules in the pipeline, both on NCE and NDDS platform. All molecules are in early pre-clinical stages and it would take time (atleast late 2003) before one can expect revenues from out licensing.

At the current market price of Rs 108, the stock is trading at 6x its earnings for FY02. The current acceleration in its research iniatitives, sales and margins growth and breakthrough in the generics business are expected to prove as good triggers for the stock in the near term. The stock is also attractively priced when compared to its peers. However, a high capital gearing ratio (1.6x approx) is one of the key areas of concern. Debt burden of the company has jumped to Rs 622 m eating away more than one third of its operating profits. Moreover, the capital structure of the company also has significant preference shares, which carries a fixed dividend burden.


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