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Lupin: US leads the charge - Views on News from Equitymaster

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Lupin: US leads the charge
Aug 13, 2012

Lupin announced first quarter results of financial year 2012-2013 (1QFY13). The company reported a 44% YoY growth in sales, while net profits grew by 34% YoY. Here is our analysis of the results.

Performance summary
  • Topline grows by 44% YoY during 1QFY13 led by growth across all business segments.
  • Operating margins improve by 1.5% during the quarter due to lower raw material and staff costs (as percentage of sales).
  • Although growth in the bottomline is healthy at 34% YoY, it is lower than the growth in PBT on account of higher tax outgo.

Financial performance: Consolidated snapshot
(Rs m) 1QFY12 1QFY13 Change
Net sales 15,675 22,537 43.8%
Expenditure 12,734 17,961 41.1%
Operating profit (EBIDTA) 2,942 4,576 55.6%
Operating profit margin (%) 18.8% 20.3%  
Other income 14 236 1595.0%
Interest (net) 58 101 74.4%
Depreciation 471 654 38.7%
Profit before tax 2,426 4,058 67.2%
Tax 286 1,208 322.1%
Minority interest 39 46 17.3%
Profit after tax 2,101 2,804 33.5%
Net profit margin (%) 13.4% 12.4%  
No. of shares (m) 446.3 446.8  
Diluted earnings per share (Rs)*   21.0  
P/E ratio (x)   27.7  
* On a trailing 12-months basis

What has driven performance in 1QFY13?
  • Revenues of Lupin grew by a healthy 44% YoY during 1QFY13 led by growth across all business segments. The US business grew by 40% YoY during the quarter. In the US market, besides the existing products, the company resumed sales of its Metformin Hydrochloride tablets 500 mg and 100 mg. Regards this, the US Court of Appeals had granted the company's request to stay the preliminary injunction that had earlier barred sales of those tablets. The company now has a portfolio of 42 products and is the market leader in 20 of them. Besides this, the company also received final approval for Lamivudine, Zidovudine and Combivir tablets. The European business grew by 14% YoY during the quarter while revenues in Japan nearly doubled. It must be noted that the company also acquired l'rom Pharmaceuticals to enter the US$ 9 bn DPC (diagnosis procedure combination) hospital market in the country. Thus, excluding this acquisition, revenues from Japan grew by 37% YoY.

  • Lupin's revenues from the domestic business grew by 25% YoY and were driven by growth in the therapeutic areas of CVS, diabetes, asthma and anti-infectives. Besides this, it has also been focusing on the more profitable chronic therapy segments and these along with semi-chronic therapies now account for around 54% of the domestic portfolio.

  • During 1QFY13, Lupin's operating margins improved by 1.5% due to lower raw material and staff costs (as percentage of sales). Net profit growth was healthy at 34% YoY although it was lower than the growth in PBT on account of higher tax outgo. This was higher because the company's plants at Goa and Mandideep no longer enjoy the EoU status.

What to expect?
At the current price of Rs 579, the stock is trading at a multiple of 17.4 times our estimated FY14 earnings. Going forward, we expect Lupin's growth to be driven by increasing scale of its US business and the other geographies that the company has ventured into, namely Europe, Africa and Japan. In the highly competitive US generics market, the company intends to launch upwards of 120 products over the next three years, which address a market of US$ 48 bn in brand revenue.

As far as Japan is concerned, the company intends to focus on ramping up field force, improving product mix and strengthening is presence in the hospital segment. We also expect a modest improvement in operating margins going forward with the increase in capacity utilization on back of sales growth. Overall, the company is on a strong track and we advise investors to hold on to the stock.

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