Q4FY23 Review: Lupin: Guidance in-line; execution holds the key

11 May 2023 , 11:18 AM

Lupin’s Q4 Ebitda margin at ~12.5%, adjusted for PLI incentives of Rs590mn, was in line with our estimates; despite benefitting from higher API/RoW/India sales this quarter. Spiriva remains the most important trigger for Lupin, with mgmt guiding for USFDA approval & launch by Jun/Jul (no clarity yet on requirement of facility inspection). Analysts of IIFL Capital Services estimates already factor in USD100/125mn revenue from Spiriva in FY24/25. Ebitda margin guidance of >15% for FY24 and 18% exit run-rate for Q4FY24 is also in line with their expectations. But execution would hold the key, given similar margin improvement was expected during the phase of Albuterol launch in FY21/22 as well, and the company’s execution has been subpar on several fronts including the targeted cost optimization programs.

IIFL Capital Services’ analysts estimates factor in annualised US sales of USD800/850mn in FY24/25 vs USD700mn run-rate in H2FY23, driven by USD100/125mn sales from Spiriva. Unit-3 Pithampur facility inspection would be the key risk, as it could delay Spiriva’s approval to H2FY24. With US price erosion sustaining at mid-to-high single digits, other launches (Prezista, Nascobal, Diazepam, Chantix) would only help offset the base erosion.

Execution holds the key to drive margin improvement: 

Analysts of IIFL Capital Services expect Lupin’s overall revenue to grow at ~10% Cagr over FY23-25, driven by 13% cc/9% Cagr in India/US sales resp. However, Ebitda is likely to clock >30% Cagr over the next 2 years, as margins improve from ~12% in FY23 to ~17% in FY25, driven by the Spiriva opportunity. Execution would hold the key, as Lupin has disappointed in the past as well with regards to the anticipated margin expansion in FY21/22 on the back of Albuterol launch. 

Visible progress is needed on cost optimisation programs to make us constructive: 

Analysts of IIFL Capital Services remain concerned that focused efforts to drive cost optimisation and a sustainable margin improvement, seem lacking, with the mgmt largely banking on Spiriva to expand margins. While Lupin has been targeting cost savings of Rs6bn p.a. (of which Rs3-3.5bn has been realised), overall cost base (ex-COGS) was largely flat QoQ in Q4. Singleproduct stories are inherently volatile and they believe that Lupin’s valuations doesn’t factor-in the execution risks incl. potential delays in Spiriva launch.