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Lupin: Year starts with a bang!
Jul 31, 2014 | Updated on Aug 1, 2014

Lupin has announced its 1QFY15 results. The company has reported 35.7% YoY and 55.8% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 35.7% YoY during the quarter led by growth in all its major segments. Among the various geographies, US witnesses stupendous growth of 57% YoY for the quarter.
  • Operating margins improve drastically by 9.6% to 33.4% in 1QFY15, resulting in the 89.1% YoY growth in operating profits.
  • Despite the healthy growth in operating profits, bottomline growth is relatively lower at 55.8% YoY. This is on account of surge in taxes and higher depreciation charges.

Financial performance: A snapshot
(Rs m) 1QFY14 1QFY15 Change
Net sales 24,207 32,840 35.7%
Other operating income 555 568 2.3%
Expenditure 18,867 22,260 18.0%
Operating profit (EBDITA) 5,895 11,148 89.1%
EBDITA margin (%) 23.8% 33.4%  
Other income 1,009 289 -71.4%
Interest (net) 54 26 -52.1%
Depreciation 624 1,086 74.0%
Profit before tax 6,226 10,325 65.8%
Minority Interest 44 49 11.1%
Tax 2,172 4,029 85.5%
Profit after tax/(loss) 4,010 6,247 55.8%
Net profit margin (%) 16.6% 19.0%  
No. of shares (m)   447.1  
Diluted earnings per share (Rs)   46.0  
Price to earnings ratio (x)*   25.8  
*based on trailing 12 months earnings

What has driven performance in 1QFY15?
  • Topline grew by 35.7% YoY during the quarter led by growth in all its major segments. Barring Europe, all the geographies witnessed robust growth. India and the US were the ones that did quite well for the quarter.

    Business Mix
    (Rs m) 1QFY14 1QFY15  
    Domestic Formulations 5,894 7,615 29.2%
    (% of  revenues) 24.3% 23.2%  
    Export Formulations 15,884 22,300 40.4%
    (% of  revenues) 65.6% 67.9%  
    API 2,429 2,925 20.4%
    (% of  revenues) 10.0% 8.9%  
    Total 24,207 32,840 35.7%

  • The domestic segment witnessed healthy growth of 29.2% YoY for the quarter. The company made 16 new launches in India and had also undertaken price hike in various products. This helped the company register better growth during the quarter. The company expects to grow above the industry for the upcoming period.

  • The export formulations business grew by 40.4% YoY for the quarter. US witnessed healthy growth of 57% YoY, while in the constant currency terms, the US grew by 46% YoY. In the US, the generics segment contributed 93% to total US sales, while the branded segment contributed the remaining 7%. The US branded sales declined by 15% YoY (in constant currency terms) during the quarter. The company's Alinia brand has started witnessing some traction and witnessed growth of 28% YoY. The US generic sales grew by 53.1% YoY in constant currency terms. The growth was largely due to launch of new products and also ramp up in low competition products. The US generic segment also included non-recurring IP income received from Salix of US$ 5 m. After excluding this, the generic segment still grew by 50% YoY. The company remained confident of launching 15-20 products for FY15 of which 4-5 will be niche launches. Currently, the company has so far commercialized 73 products in the US market.

  • Japan witnessed better growth during the quarter. The sales were up by 17% YoY and in constant currency terms the growth was at 13% YoY for quarter. Going forward, the company has guided for double digit growth in its Kyowa subsidiary despite the negative impact of price cuts and additional taxes.

  • Operating margins improved drastically by 9.6% to 33.4% in 1QFY15, resulting in the 89.1% YoY growth in operating profits. This performance is largely attributable to good launches in the US market and better market share in low competition products. Over and above, there was a forex gain of Rs 220 m, which has helped in margin expansion to some extent. The company has guided for similar margins for the upcoming period, on back of a better product mix in the US.

  • Despite the 89% YoY growth in operating profits, the growth in bottomline, though healthy, was lower at 55.8% YoY. This was on account of a surge in taxes and depreciation. The tax rate for the quarter was at 39%. For the full year, the company has guided for a tax rate of approximately 32-33%.
What to expect?
At the current price of Rs 1,186 the stock is trading at a price to earnings multiple of 23.2 times our estimated FY16 earnings. Given that the company generates large part of its revenues from US and India so far, these geographies will continue to be the growth drivers. Over and above, company is now looking to enter into global markets viz., emerging markets and Europe as the competition intensifies in the US and India. Even Japan will be an important growth driver in the long run.

The company has augmented its US portfolio and has developed a lucrative pipeline. This gives comfort with respect to Lupin's long term growth and better margin performance. However, the volatile dollar rupee movement can be a dampener. Overall, while company's prospects look good, the current valuations do not offer any opportunity to buy the stock, hence we recommend that investors who have the stock to Hold on to the same.

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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