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Lupin: Bolstered by global markets
Jul 31, 2009

Performance summary
  • Topline grows by 25% YoY during 1QFY10 led by growth across all business segments.
  • Operating margins reduce by 0.4% during the quarter due to a rise in purchase of traded goods and staff costs (as percentage of sales).
  • Led by the strong growth at the operating level, higher other income and lower interest costs, net profits grow by 25% YoY.


Financial performance: Consolidated snapshot
(Rs m) 1QFY09 1QFY10 Change
Net sales 8,800 11,005 25.1%
Expenditure 7,097 8,914 25.6%
Operating profit (EBIDTA) 1,703 2,091 22.8%
Operating profit margin (%) 19.4% 19.0%  
Other income 25 61 143.0%
Interest (net) 102 107 5.3%
Depreciation 193 231 19.3%
Profit before tax 1,433 1,815 26.6%
Tax 313 364 16.1%
Minority interest (1) 33  
Share of loss in associates 0 17  
Profit after tax 1,120 1,401 25.1%
Net profit margin (%) 12.7% 12.7%  
No. of shares (m) 82.1 83.2  
Diluted earnings per share (Rs)   63.7  
P/E ratio (x)   14.6  

What has driven performance in 1QFY10?
  • Lupinís revenues grew by a healthy 25% YoY during 1QFY10 led by strong growth across all business segments. The companyís US business reported an impressive 35% YoY growth during the quarter and was driven by both its generics and branded generics business. The quarter also saw Lupin expanding its branded business with the acquisition of the worldwide rights for the intra-nasal steroid (INS) product AllerNaze. The size of the INS market has been pegged at US$ 2.5 bn in annual sales in the US. Lupin now has 22 products in the US market, out of which the company is the market leader in 8 of them. Overall, sales to the advanced markets of US and Europe registered a 40% YoY growth.

  • As far as the business mix is concerned, the contribution of APIs has now reduced to 16%, while that of formulations has increased to 84%. With respect to the revenue mix, domestic sales account for 37% of total revenues, while the balance 63% is contributed by the international business. If one takes a look at only the formulations then domestic sales, emerging market sales and advanced market sales account for 38%, 9% and 53% respectively.

  • Lupinís revenues from the domestic business grew by 22% YoY and were driven by growth in the therapeutic areas of CVS, diabetes, CNS, asthma and gastrointestinal. Kyowa, the companyís subsidiary in Japan, registered a growth of 42% YoY in 1QFY10 and now contributes around 12% to Lupinís overall formulation sales. Further, Lupinís South African business Pharma Dynamics registered a 40% YoY growth.

  • During 1QFY10, Lupinís operating margins reduced marginally by 0.4% due to a rise in purchase of traded goods and staff costs (as percentage of sales). While purchase of traded goods (as percentage of sales) increased from 7.6% in 1QFY09 to 15.9% in 1QFY10, staff costs increased to 12% (11.5% in 1QFY09). Net profits grew by 25% YoY bolstered by the 23% YoY growth in operating profits, higher other income and lower interest costs.

What to expect?
At the current price of Rs 929, the stock is trading at a multiple of 10.1 times our estimated FY12 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. While the growth prospects of the company look good, valuations appear to be on the higher side and hence we advise investors to be cautious while investing in the stock.

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