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Lupin: All round growth - Views on News from Equitymaster
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Lupin: All round growth
Oct 24, 2008

Performance summary
  • Topline grows by a robust 39% YoY led by healthy performances of both its domestic formulations and US and European generics businesses.

  • Operating margins expand marginally by 0.2% driven by a considerable fall in raw material costs (as percentage of sales).

  • Strong performance at the operating level and lower tax expenses contribute to the impressive 53% YoY growth in the bottomline.



Financial performance: Consolidated snapshot

(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net sales 6,740 9,343 38.6% 12,606 18,143 43.9%
Expenditure 5,464 7,555 38.3% 10,400 14,651 40.9%
Operating profit (EBIDTA) 1,276 1,788 40.2% 2,206 3,491 58.3%
Operating profit margin (%) 18.9% 19.1%   17.5% 19.2%  
Other income 38 13 -64.6% 88 39 -56.3%
Interest (net) 80 127 58.9% 169 229 35.5%
Depreciation 140 201 43.6% 267 394 47.4%
Profit before tax 1,094 1,474 34.8% 1,858 2,907 56.5%
Tax 338 312 -7.6% 544 625 15.0%
Minority interest (1) 2   (1) 1  
Share of loss in associates - 4   - 4  
Profit after tax 756 1,156 52.9% 1,315 2,277 73.1%
Net profit margin (%) 11.2% 12.4%   10.4% 12.5%  
No. of shares (m)       82.1 82.3  
Diluted earnings per share (Rs)         61.3  
P/E ratio (x)         10.0  

What has driven performance in 2QFY09?
  • Lupin’s revenues grew by a robust 39% YoY during 2QFY09. Growth was led by strong performance of the company’s formulations business in the domestic market (sales up 24% YoY) and robust growth of formulation exports to the regulated markets of North America and Europe (sales up 65% YoY). In the US, the company achieved market leadership in 7 of the 20 products including ‘Ramipril’. Besides this, the company forged an alliance with Forest Laboratories for marketing and promoting ‘AeroChamber Plus’ thereby enhancing Lupin’s presence in the respiratory segment. The branded product ‘Suprax’ did well during the quarter despite the off-peak season for the product.

  • Lupin further entrenched its presence in Europe by completing the acquisition of the German company Hormosan Pharma, which specialises in the supply of generic pharma products for the central nervous system (CNS). Kyowa, the company’s subsidiary in Japan, registered a growth of 24% YoY in 1HFY09 and now contributes around 11% to Lupin’s overall formulation sales. Revenues from the domestic market registered an impressive 24% YoY growth and were driven by growth in the therapeutic areas of asthma, cardiovascular, CNS, diabetes and gastrointestinal segments. Lupin maintained its leadership in the anti-TB segment and was able to enhance its market share in the asthma segment backed by various product offerings.

  • During 2QFY09, Lupin’s operating margins improved marginally by 0.2% largely due to a substantial fall in raw material costs (from 32.1% of sales in 2QFY08 to 21% in 2QFY09) despite the other cost heads witnessing an increase. Going forward too, we expect Lupin’s margins to expand as the company’s international operations, particularly the US, pick up scale.

  • Strong performance at the operating level and lower tax expenses contributed to the superlative 53% YoY growth in the bottomline. This growth is despite the reduction in other income, higher interest costs and depreciation charges.


What to expect?
At the current price of Rs 615, the stock is trading at a multiple of 10.6 times our estimated FY11 earnings. Going forward, we expect Lupin’s growth to be driven by increasing scale of its US generics business and a relatively larger contribution from the finished dosages business as compared to APIs. Besides this, the company’s strong presence in the cephalosporins (anti-infectives) and anti-TB space gives it an edge over its peers. Having said that, despite the strong growth prospects of the company, valuations at the current levels appear stretched.

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