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Lupin: Global strategy is paying off
Nov 5, 2009

Performance summary
  • Topline grows by 25% YoY during 2QFY10 led by growth across all business segments.
  • Operating margins reduce by 0.7% during the quarter due to a rise in raw material costs (as percentage of sales).
  • Led by the strong growth at the operating level, higher other income and lower interest costs and tax expenses, net profits grow by 39% YoY.


Financial performance: Consolidated snapshot
(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 9,343 11,658 24.8% 18,143 22,663 24.9%
Expenditure 7,555 9,507 25.8% 14,651 18,421 25.7%
Operating profit (EBIDTA) 1,788 2,150 20.2% 3,491 4,242 21.5%
Operating profit margin (%) 19.1% 18.4%   19.2% 18.7%  
Other income 13 30 123.1% 39 91 136.1%
Interest (net) 127 91 -28.4% 229 198 -13.4%
Depreciation 201 242 20.7% 394 473 20.0%
Profit before tax 1,474 1,847 25.3% 2,907 3,661 26.0%
Tax 312 200 -35.8% 625 564 -9.8%
Minority interest 2 26   1 58  
Share of loss in associates 4 18   4 35  
Profit after tax 1,156 1,603 38.6% 2,277 3,004 32.0%
Net profit margin (%) 12.4% 13.8%   12.5% 13.3%  
No. of shares (m)       82.1 83.2  
Diluted earnings per share (Rs)         63.7  
P/E ratio (x)         19.8  

What has driven performance in 2QFY10?
  • Lupinís revenues grew by a healthy 25% YoY during 2QFY10 led by strong growth across all business segments. Formulation sales from the US and EU registered a robust 28% YoY growth. In the US market especially, the branded generics business grew by a dazzling 83% YoY. The quarter also saw Lupin expanding its branded business with the acquisition of the cholesterol drug ĎAntaraí from Oscient Pharmaceuticals for around US$ 38.6 m. ĎAntaraí recorded net sales of US$ 70 m for 2008. The US generics business also did well during the quarter. Lupin now has 22 products in the US market, out of which the company is the market leader in 9 of them. The company filed 7 ANDAs during the quarter taking the total cumulative filings till date to 98, out of which 35 have been approved so far by the US FDA.

  • Lupinís revenues from the domestic business grew by 19% 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 27% YoY in 2QFY10 and now contributes around 12% to Lupinís overall formulation sales. Further, Lupinís South African business Pharma Dynamics registered a 49% YoY growth.

  • During 2QFY10, Lupinís operating margins reduced marginally by 0.7% due to a rise in raw material costs (as percentage of sales) from 21% in 2QFY09 to 26.3% in 2QFY10. The company managed to keep its other costs under control. Led by the strong 20% YoY growth in operating profits, higher other income and lower interest costs and tax expenses, net profits grew by 39% YoY.

What to expect?
At the current price of Rs 1,315, the stock is trading at a multiple of 14.3 times our estimated FY12 earnings. Going forward, we expect Lupinís 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. Besides, the companyís strong presence in the cephalosporins and anti-TB space gives it an edge over its peers. The companyís focus on niche products is also expected to augur well from a long term perspective. We also expect an improvement in operating margins from 18.8% in FY09 to 20.3% in FY12 led by focus on niche products and increasing proportion of formulations to total sales. Having said that, there are risks that the company faces on the regulatory front, especially with respect to the issues with the US FDA. We maintain our positive view on the stock from a long term perspective.

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