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Lupin: Domestic sales outperforms
Nov 19, 2011

Lupin has announced its second quarter results for financial year 2011-12 (2QFY11). The company has reported a 23.6% YoY and 24.2% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Sales grow by 23.6% YoY led by one-time license income and strong growth in the domestic as well as the international market.
  • Operating margins (EBITDA) increase by 200 bps (2%) to 22.8% due to licensing income. Excluding the upfront payment, margins saw some pressure due to increased R&D costs and other expenses.
  • Profit after tax grows at a relatively slower pace of 24.2% YoY largely on account of higher tax expenses.


Financial performance: A snapshot
(Rs m) 2QFY11 2QFY12 Change 6mFY11 6mFY12 Change
Net sales 14,339 17,724 23.6% 27,682 33,401 20.7%
Expenditure 11,353 13,684 20.5% 21,852 26,417 20.9%
Operating profit (EBIDTA) 2,986 4,041 35.3% 5,830 6,984 19.8%
EBDITA margin (%) 20.8% 22.8%   21.1% 20.9%  
Other income 14 16 15.7% 22 28 25.6%
Depreciation 435 522 20.0% 836 993 18.9%
Interest 88 66 -24.1% 169 124 -26.6%
Profit before tax 2,478 3,468 40.0% 4,848 5,895 21.6%
Tax 271 751 176.8% 621 1,037 67.1%
Minority Interest (57) (49)   (114) (88)  
Profit after tax/(loss) 2,150 2,669 24.2% 4,113 4,770 16.0%
Net profit margin (%) 15% 15%   15% 14%  
No. of shares (m) 446 446   446 446  
Diluted earnings per share (Rs) 4.8 6.0   9 11  
Price to earnings ratio (x)*   22.3        
*On trailing 12 month basis

What has driven performance in 2QFY12?
  • Lupin's sales stood at 23.6% YoY during the quarter led by an upfront licensing income received from Medicis Pharma and strong domestic formulations sales. Medicis Pharma paid an upfront payment of US$ 20 m to Lupin after signing an agreement to apply Lupin's formulation technologies to multiple therapeutic compounds. On achievement of various milestones, the company will be able to earn another US$ 38 m along with the royalty on sales of developed products. Excluding this payment from Medicis, net sales increased by around17% YoY with domestic sales (contributes ~30% to sales) growing by 22% YoY to Rs 5.1 bn. The growth in domestic market was significantly higher than that of the industry.

  • Looking at the US market, the branded business registered a growth of 19% YoY, while the generics business grew by 14% YoY. Within the quarter, the company launched Metformin tablets after having the approvals from the FDA. As Lupin was the first applicant to file an ANDA for this product, it is permitted 180 days of exclusivity. Sales performance across other geographies was also healthy with South Africa and Japan growing at ~60% and ~14% respectively.

  • Operating margins increased by 200 bps (2%) to 22.8% on account of licensing income from Medicis Pharma. However, if we exclude the licensing income, the operating margins have dipped 50 bps (0.5%) on account of higher operating expenditure.

  • Profit after tax growth stood at 24.2% YoY, lower than operating profit growth, due to spike in tax payout from 11% in 2QFY11 to 22% this quarter.

  • The current cumulative ANDA filings stands at 153 and the company received 3 ANDA approvals in the quarter and 6 ANDA approvals in the past six months. This takes the total approvals of ANDA filings to 54.

  • Apart from the agreement with Medicis Pharma, Lupin also enter into a partnership with Eli Lilly India to distribute Lilly's Huminsulin products in India & Nepal.

What to expect?
At the current price of Rs 463, the stock is trading at a multiple of 13.9 times our estimated FY14 earnings. Going forward, we expect Lupin's growth to be driven by more product launches across the markets and thereby increase its market share. For India, the company has maintained 20% growth in the near future, which they should be able to achieve in light of recent results where they have grown much better than the industry. In the competitive US market, its strategy of focusing on branded generics gives it an edge over other domestic players in the sector. Lupin has a huge pipeline of ANDA filings which should help it achieve steady growth in this market. The newly formed partnerships and tie-ups can provide incremental benefits to the company. We also expect an 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 advice investors to hold on to the stock from a long term perspective.

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