Q2FY24 Review: Lupin: Upfronting of Spiriva benefits by a quarter

10 Nov 2023 , 12:55 PM

Lupin’s Q2 Ebitda margin at 18.3% was 180bps ahead of analysts of IIFL Capital Services estimates, driven by higher GMs and operating leverage benefit from USD30m of Spiriva sales booked in Q2. Analysts of IIFL Capital Services were already building-in 18.5% margins for Lupin in H2FY24 and hence they only marginally upgrade their margin estimates by 40bps. This along with higher sales in RoW markets has driven 2-5% Ebitda upgrade for FY24-26. With the key Spiriva launch and margin benefit in the bag now, they would watch out for Lupin’s ability to crack other complex generics (next set of big launches expected in FY26), given the US business remains a constant treadmill of plugging the base portfolio with large pipeline products. Lupin’s India business is also growing only in-line with the IPM growth, owing to impact of expiries in diabetes portfolio. With the stock trading at 27/23x FY25/26 PER, analysts of IIFL Capital Services believe most of the positives are already priced in. Maintain REDUCE (TP Rs1135 at 23x 2YF EPS). 

Analysts of IIFL Securites assume 30% MS in Spiriva by FY26: 

Lupin’s US sales increased QoQ from USD181m to USD213m, as Spiriva (inventory stocking) would have contributed USD30m sales (IIFLe) in Q2. Although Lupin’s MS in Spiriva has stabilized at 20% over the past month, there could be some inventory rationalization in H2 leading to sequential moderation in Spiriva sales. Analysts of IIFL Capital Services assume USD80-145m revenue from Spiriva over FY24-26, with 20-30% MS and 10-20% price erosion. Mgmt expects overall US sales to sustain at >USD200m quarterly run-rate (analysts of IIFL Capital Services have assumed USD210-215m in H2), given seasonal portfolio pick-up is also trending below last year’s levels. 

FY26 is expected to be the next big year for US launches, as mgmt is optimistic on its pipeline of injectables, ophthalmic & inhalation products. Bromday, Bromsite & Prolensa could be near-term small opportunities. For injectables, Lupin is targeting Glucagon launch in FY25, Liraglutide in FY26, Risperidone in FY26 (USFDA filing will happen this month). Aided by Spiriva ramp-up and other launches, analysts of IIFL Capital Services expect Lupin’s US sales to increase from USD800m annualized run-rate in H1FY24 to USD920m in FY26. 

Cost optimization benefit on margins not visible: 

While Spiriva-driven GM expansion and operating leverage led to Lupin’s Ebitda margins improving 420bps QoQ, Lupin’s cost optimization efforts are not visible given employee costs have increased owing to India rep expansion and other expenses remain elevated. Nonetheless, with further scale-up in Spiriva, analysts of IIFL Capital Services expect Lupin’s Ebitda margins to improve to 19.5% in FY26.