Lupin (Q1 FY15)

India Infoline News Service | Mumbai |

Adjusted for Rs220mn above EBIDTA line forex item, absolute EBIDTA at Rs10.9bn was still a large beat on our estimate of Rs8.9bn driven by ~950bps yoy jump in margins to 33.4%.

CMP Rs1,182, Target Rs1,380, Upside 16.8% 
  • Lupin posted a stellar all round beat on our estimates driven by strong growth in US generics and India business

  • Revenues up ~35% yoy on 56.5% yoy rise in US sales and ~29% growth in domestic business

  • Adjusted EBIDTA up 85% yoy on ~950bps margin expansion; company expects sustainable margin in the range of 28-30%; PAT up 56% yoy

  • Comprehensive beat and strong outlook supports our BUY reco with 9-12mths target of Rs1,380

Result table
(Rs m) Q1 FY15 Q4 FY14 % qoq Q1 FY14 % yoy
Net sales 33,408 31,205 7.1 24,762 34.9
RM + inventory changes (6,686) (5,566) 20.1 (4,406) 51.8
Purch of stock in trade (4,388) (4,238) 3.5 (4,342) 1.1
Staff expense (4,104) (3,896) 5.3 (3,281) 25.1
Other expenses (7,084) (8,736) (18.9) (6,838) 3.6
Operating profit 11,148 8,769 27.1 5,895 89.1
OPM (%) 33.4 28.1 527 bps 23.8 956 bps
Depreciation (1,086) (743) 46.1 (624) 74.0
Interest (26) (122) (78.9) (54) (52.7)
Other income 289 52 456.0 1,009 (71.4)
PBT 10,325 7,957 29.8 6,226 65.8
Tax (4,029) (2,327) 73.2 (2,172) 85.5
Effective tax rate (%) 39.0 29.2 979 bps 34.9 415 bps
Minority Interest (48) (100) (51.7) (44) 9.5
PAT 6,247 5,530 13.0 4,011 55.8
PAT margin (%) 18.7 17.7 98 bps 16.2 250 bps
Source: Company, India Infoline Research

Lupin reports comprehensive beat; PAT up >50% yoy

Lupin reported a stellar set of numbers with comprehensive beat on our revenues/EBIDTA/PAT estimates; along with robust operational performance, results were aided by ~7% yoy INR depreciation.

US business: Q1 revenues jumped ~35% yoy vs our estimate of 28.4% yoy driven by strong 56.5% yoy growth in US generics. Company launched 4 products in US during the quarter and now has 73 products in the market. It is also a market leader in 31 products marketed in US generics market. Lupin indicated that such strong US growth is likely to continue though obviously not at such levels (>50% yoy).

India business: Domestic business grew much ahead of industry run rate as well as our estimates (+11% yoy) at 29.2% yoy though supported to an extent by the low base of last year.

Japan & South Africa: Japan local currency sales (Kyowa + I’rom) were 13% yoy while INR revenues clocked 16.8% yoy rise to Rs3.4bn. Kyowa revenues alone grew 19% in local currency and 23% in INR terms. In South Africa, Pharma Dynamics posted 16.5% yoy with clear leadership in cardiovascular space. 


Revenue mix
Revenues (Rs mn) Q1 FY15 Q1 FY14 % yoy
Formulations 29,915 21,778 37.4
US (inc IP income) 16,055 10,256 56.5
Europe 690 738 (6.5)
India 7,615 5,894 29.2
Japan 3,415 2,923 16.8
South Africa 869 746 16.5
ROW 1,271 1,221 4.1
API 2,925 2,429 20.4
Total 32,840 24,207 35.7
Source: Company, India Infoline Research

Adjusted EBIDTA, PAT much ahead of estimates; 4 ANDA approvals in Q1   

Adjusted for Rs220mn above EBIDTA line forex item, absolute EBIDTA at Rs10.9bn was still a large beat on our estimate of Rs8.9bn driven by ~950bps yoy jump in margins to 33.4%. Company indicated in its conference call that sustainable margin seen in the range of 28-30%. A large part of margin ramp up yoy was due to lower other expenses as higher realizations and forex swings have suppressed other expenses as % of sales during the quarter. A robust operating performance led to beat on bottom line as PAT jumped ~56% yoy vs our forecast of 31% yoy. Lupin filed 8 ANDAs and got 4 approvals from USFDA during the quarter. Cumulative ANDA filings as of Q1 stood at 200 with 103 approvals received so far. Cumulative filings with European regulators stood at 57 with 49 approvals received till date.  

Conference call highlights

Key takeaways from Q1 conference call: 1) INR depreciation contributed to an extent in robust performance. Sustainable margins seen at 28-30% depending on products and forex situation; Q1 included Rs220mn above EBIDTA line gain. 2) Aspire to a US$5bn revenue target. Company has grown well organically; for instance of US$2bn annual revenues only US$200mn is inorganic. Focus on organic growth complemented by inorganic opportunities 3) Strong growth in US generics but not at level seen in Q1 (~50% yoy); expect some erosion in some large products but opportunity of price increase and some volume gains to act as offset. Target 20+ launches for US this year. 4) Domestic market-strong yoy growth on a low base in Q1 of last year. Company would definitely grow above domestic industry average 5) R&D is in a ramp up mode and over the quarters one can expect an increase; guided 9-10% of sales 6) Higher realizations and forex swing make other expenses as % of sales look smaller in Q1

Robust US growth and margin expansion key positives: BUY

We expect strong growth in US generics to continue while India business would grow much faster than the industry run rate. A ramp up in R&D augurs well in the medium term even as company focuses on opportunities in several specialty areas like ophthalmics, respiratory, dermatology etc. We forecast ~22% PAT cagr over FY14-16 and factor in margin expansion during the same period which at 28.5% in FY16 would still be at the lower end of the sustainable range indicated by the company and much below Q1 levels. Recommend BUY with 9-12mth target of Rs1,380.  


Financial summary
Y/e 31 Mar (Rs m) FY13 FY14 FY15E FY16E
Revenues 96,413 112,866 134,562 156,428
yoy growth (%) 36.1 17.1 19.2 16.3
Operating profit 22,699 30,028 37,408 44,582
OPM (%) 23.5 26.6 27.8 28.5
Reported PAT 13,142 18,363 22,764 27,313
yoy growth (%) 42.2 39.7 24.0 20.0
EPS (Rs) 29.4 41.0 50.8 60.9
P/E (x) 40.4 28.9 23.3 19.5
P/BV (x) 10.2 7.7 6.4 5.3
EV/EBITDA (x) 23.6 17.6 14.1 11.7
Debt/Equity (x) 0.2 0.1 0.1 0.1
ROE (%) 25.8 30.8 30.4 30.3
Source: Company, India Infoline Research
 

 

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