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Q3FY24 Review: Lupin: Aspiring for further margin expansion

9 Feb 2024 , 01:41 PM

Lupin reported a good quarter with Q3 Ebitda beat of 12% vs IIFLe, driven by a 5% beat on topline (India & RoW led) and ~120bps higher Ebitda margins (equally driven by GMs, lower R&D, operating leverage). Mgmt has guided for single-digit growth in the US business for FY25 (IIFLe 8% cc) driven by further MS ramp-up in Spiriva (to potentially 40%) and 10 new launches (including 6 injectables). Analysts of IIFL Securities have assumed Tolvaptan launch in H2FY27 (vs mgmt’s expectation of early-FY26) given litigation is ongoing (key patent expires Sep’26). While mgmt expects near-term Ebitda margins to sustain at 19.5-20.5% (vs 19.7% in Q3), Lupin is targeting complex launches in the US and improving profitability in India business to help expand margins to 22-23% over the next 3 years. Analysts of IIFL Securities upgrade their margin estimates by 130-150bps p.a. and expect 21.5% base margins (ex-Tolvaptan) in FY26/27, which has driven 10-12% Ebitda upgrades for the next 2 years. With the stock trading at ~24x FY26 revised EPS, analysts of IIFL Securities find limited-upside and maintain their REDUCE rating (TP ₹1,590).

Seasonal portfolio and base products aided US sales in Q3: 

Lupin’s US sales was flat QoQ at USD212m in Q3, despite sequential decline in Spiriva (from USD30m to USD25m, per IIFLe), led by pick-up in seasonal portfolio and base business products. With inhalation now accounting for 40% of Lupin’s US sales, mgmt indicated that the US business has delivered 6th straight quarter of margin improvement. Lupin has filed Risperdal Consta with USFDA and expects to file a response to Dulera CRL by May’24. 

Analysts of IIFL Securities forecast US sales to grow 8/11/17% cc in FY25/26/27, as they expect Spiriva to contribute USD120-160m sales p.a. over the next 3 years (no generic competition expected till 2027), which will be further supplemented by launches of Mirabegron, Dulera, Tolvaptan, Glucagon, Liraglutide, Risperdal over the next 3-4 years. Mgmt has guided for US growth of single-digits in FY25 and double-digits in FY26. Analysts of IIFL Securities assumption of Tolvaptan launch in H2FY27 is driving the significant growth for FY27. 

India business will likely clock 10% Cagr over FY24-27, as the impact of patent-expiries in in-licensed diabetes portfolio is behind Lupin. India business growth will be driven by improving productivity of 20% incremental reps (~1100 reps) added over the past 2.5yrs, further increase in chronic revenue share (~62%) & new launches. Lupin has added 7 new divisions in India in 1yr and intends to add a couple more in few quarters.

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