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Lupin: Strong start to the year - Views on News from Equitymaster
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Lupin: Strong start to the year
Jul 29, 2010

Lupin has announced its 1QFY11 results. The company has reported 21% YoY and 40% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 21% YoY during 1QFY11 led by growth across all business segments.
  • Operating margins expand by 2.3% during the quarter largely due to a fall in raw material costs (as percentage of sales).
  • Led by the strong growth in operating profits, reduction in interest costs and lower tax expenses, net profits grow by a robust 40% YoY.

Financial performance: Consolidated snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 11,005 13,343 21.2%
Expenditure 8,914 10,499 17.8%
Operating profit (EBIDTA) 2,091 2,844 36.0%
Operating profit margin (%) 19.0% 21.3%  
Other income 61 8 -86.4%
Interest (net) 107 82 -24.0%
Depreciation 231 401 73.8%
Profit before tax 1,815 2,370 30.6%
Tax 364 350 -3.9%
Minority interest 33 38 17.1%
Share of loss in associates 17 19 9.8%
Profit after tax 1,401 1,963 40.1%
Net profit margin (%) 12.7% 14.7%  
No. of shares (m) 83.2 89.0  
Diluted earnings per share (Rs)   82.9  
P/E ratio (x)   23.0  
* on a trailing 12 months basis

What has driven performance in 1QFY11?
  • Revenues of Lupin grew by a healthy 21% YoY during 1QFY11 led by strong growth across all business segments. Formulation sales from the US and Europe registered a robust 40% YoY growth. In the US market especially, the branded generics business grew by 51% YoY, whereas the generics business grew by 45% YoY during the quarter. Particularly in terms of the branded generics business in the US, the company's flagship brand ‘Suprax' did very well. While ‘Suprax' suspension grew by 7% YoY, revenues from the tablets grew by a robust 52% YoY. Lupin now has 26 products in the US market, out of which the company is the market leader in 13 of them. Plus, the company has received approvals for 19 more products. The company filed 3 ANDAs during the quarter bringing the cumulative filings as at the end of the quarter to 130.

  • Lupin's revenues from the domestic business grew by 23% YoY and were driven by growth in the therapeutic areas of CVS, diabetes, CNS, asthma and gastrointestinal. This business contributed 32% to overall sales during the quarter. However, Kyowa, the company's subsidiary in Japan, registered a muted growth of 2% YoY due to price cuts that had to be undertaken on various products. Lupin's South African business registered a 33% YoY growth in sales.

  • During 1QFY11, Lupin's operating margins improved by 2.3% due to a fall in raw material costs (as percentage of sales). Raw material costs fell from 42.4% of sales in 1QFY10 to 37.7% in 1QFY11. Led by the strong 36% YoY growth in operating profits, reduction in interest costs and lower tax expenses, net profits grew by 40% YoY. The growth in net profits came about despite a significant fall in other income and higher depreciation charges.

What to expect?
At the current price of Rs 1,907, the stock is trading at a multiple of 13.5 times our estimated FY13 earnings. Going forward, we expect Lupin's growth to be driven by increasing scale of its US generics business and the other geographies that the company has ventured into, namely Europe, Africa, Asia and Australia. In the highly competitive US generics market, its strategy of focusing on branded generics gives it an edge over other domestic players in the pharma sector.

Another growth area for the company in the US market will be oral contraceptives. The company plans to launch its first set of products in the latter half of 2011 provided the regulatory approvals are in place. We also expect an improvement in operating margins going forward led by focus on niche products. Despite the growth prospects of the company, current valuations ResearchPro subscribers can view latest updates here do not leave much on the table for investors.

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