Q1FY24 Review: Lupin: All eyes on Spiriva launch now

7 Aug 2023 , 12:53 PM

Lupin’s Q1 Ebitda was 7% ahead of analysts of IIFL Capital Services estimates, driven by ~400bps QoQ improvement in GMs on the back of better product mix in the US business, return of double-digit growth to the India portfolio after several muted quarters, and lower freight costs. With Lupin’s Spiriva launch scheduled in Q2 and no authorised generic expected in the market, Lupin is targeting to capture 25-40% MS in Spiriva over the next 1.5-2 years. This should drive an expansion in Ebitda margins to 18.5-19% in FY25 from 14% in Q1FY24. Analysts of IIFL Capital Services upgrade FY24-26 Ebitda by 9-10%, to bake in better growth in the India business and 100bps p.a. higher margins led by the US business/Spiriva opportunity. However, MS execution in Spiriva remains critical now, given that their estimates already factor ~30% EPS Cagr over Q1FY24-26, and valuations at ~26x FY25 EPS leave limited scope for disappointments. Maintain REDUCE (TP Rs960). 

Spiriva and Prolensa are the next key opportunities in US: 

Analysts of IIFL Capital Services expect Spiriva to generate sales of USD100-130mn p.a., over FY24-26, assuming HandiHaler market size of USD600mn, Lupin’s MS of 20-25% and price erosion of 10-20%. With Pithampur Unit-2 WL also getting cleared, 5-6 niche ophthalmic product launches are expected over the next 2 years, including Prolensa (USD37.5mn market, Lupin FTF). While base products like Albuterol and Suprep are expected to remain steady in FY24, ramp-up in Prezista and the launch of Diazepam gel will also aid growth. Analysts of IIFL Capital Services expect US sales to increase from USD180mn in Q1 to USD210-230mn over the next 3 quarters. 

India business is also expected to start outperforming IPM growth, as the adverse base of patent expiries in in-licensed diabetes products is now behind the company. Improving productivity of the recently added 6 new divisions and 1,300 MRs in the domestic business will help drive growth in India. Lupin’s India business grew 10% YoY in Q1FY24 (13.6% YoY, adjusted for Cidmus divestment and NLEM-price cuts) and analysts of IIFL Capital Services expect 10% Cagr in Lupin’s India sales over FY24-26. 

Reiteration of Q4 exit Ebitda margins of >18%: 

Lupin expects GMs to sustain at 64% levels seen in Q1 (vs 60% in FY23), as margins benefitted this quarter from better product mix in the US (Prezista launch and lower share of seasonal product sales) and will be further supplemented by the Spiriva launch in Q2. Although other opex costs will remain high, owing to India S&M spends, mgmt has reiterated that Q4 exit run-rate of Ebitda margins will be >18% (IIFLe of 19%) driven by the Spiriva launch.