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Lupin: All businesses deliver - Views on News from Equitymaster

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Lupin: All businesses deliver

Nov 2, 2010

Lupin has announced its 2QFY11 results. The company has reported 23% YoY and 34% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline grows by 23% YoY during 2QFY11 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).
  • Bottomline grows by a robust 34% YoY but is lower than the growth in operating profits on account of higher depreciation charges.

Financial performance: Consolidated snapshot
(Rs m) 2QFY10 2QFY11 Change 1HFY10 1HFY11 Change
Net sales   11,667  14,340 22.9%  22,720  27,682 21.8%
Expenditure     9,507  11,353 19.4%  18,421  21,852 18.6%
Operating profit (EBIDTA)     2,159    2,987 38.3%    4,299    5,830 35.6%
Operating profit margin (%) 18.5% 20.8%   18.9% 21.1%  
Other income         21        14 -32.7%        33        22 -33.2%
Interest (net)         91        88 -4.1%       198       169 -14.8%
Depreciation       242       435 79.5%       473       836 76.7%
Profit before tax     1,847    2,478 34.2%    3,661    4,848 32.4%
Tax       200       271 35.4%       564       621 10.1%
Minority interest         26        48 87.5%        58        86 48.0%
Share of loss in associates         18          9 -50.6%        35        28 -20.6%
Profit after tax     1,603    2,150 34.1%    3,004    4,113 36.9%
Net profit margin (%) 13.7% 15.0% 13.2% 14.9%  
No. of shares (m)            445.7  
Diluted earnings per share (Rs)*              17.8  
P/E ratio (x)              25.0  
* based on trailing 12 month earnings

What has driven performance in 2QFY11?
  • Revenues of https://www.equitymaster.com/research-it/company-info/compinfo.asp?symbol=LUPL grew by a healthy 23% YoY during 2QFY11 led by strong growth across all business segments. Formulation sales from the US and Europe registered a robust 46% YoY growth. In the US market especially, the branded generics business grew by 10% YoY, whereas the generics business grew by 53% YoY during the quarter. Lupin now has 28 products in the US market, out of which the company is the market leader in 14 of them. The company filed 2 ANDAs during the quarter bringing the cumulative filings as at the end of the quarter to 132, of which 45 have been approved.

  • Lupin's revenues from the domestic business grew by 16% YoY and were driven by growth in the therapeutic areas of CVS, diabetes, CNS, asthma and gastrointestinal. This business contributed 30% to overall sales during the quarter. Further, Kyowa, the company's subsidiary in Japan and Pharma Dynamics in South Africa also did well to grow by 22% YoY and 28% YoY respectively.

  • During 2QFY11, 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 43% of sales in 2QFY10 to 38.3% in 2QFY11. Bottomline grew by 34% YoY and was a tad lower than the growth in operating profits on account of higher depreciation charges.

What to expect?
At the current price of Rs 445, the stock is trading at a multiple of 13.1 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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