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Lupin Ltd. | Q3FY13 Result Update




IndiaNivesh Securities Pvt Ltd


31 Jan 2013





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Lupin Ltd. | Q3FY13 Result Update | Robust growth in US linked with Tricor, maintain BUY with target price of Rs 667 Above estimates on all fronts: Company’s revenue grew 37.6% y-o- y (10% q-o-q) to Rs 24.66 billion (V/s INSPL est= Rs 23.05 billion) in Q3FY13 on account of ~61% growth from US& Europe, ~48% from Japan, ~14% from domestic markets & ~43% from South Africa. Gross margins were down by ~300 bps on y-o-y basis to 62.1% level due to change in product mix, mainly due to higher contribution from US branded revenue in Q2FY13. However, on sequential basis, Gross Margins increased ~180 bps on account of generic Tricor launch in US market. Adj EBITDA (excluding other operating income) grew 64.5% y-o-y (25.4% q-o-q) to Rs 5.70 billion (V/s INSPL est= Rs 4.56 billion). Despite decline in Gross margins, company’s EBITDA margins increased ~380 bps y-o-y (280 bps q-o-q) to 23.1% level mainly due to favorable operating leverage on account of higher sales from US & Japan. As a result, other expenditure declined ~550 bps y-o-y (~45 bps q-o-q) to 26% (as % of revenue) & employee cost declined ~125 bps (~55 bps q-o-q) to 12.8% (as % of revenue). However, linked with GDUFA fee, R&D cost stood at Rs 2.38 billion (9.7% of revenue) in Q3FY13 compared to Rs 1.41 billion (7.9% of revenue) in Q3FY12. Due to forex gain of Rs 230 million, other income increased substantially to Rs 265 million in Q3FY13 compared to Rs 33 million in Q3FY12. However, during the quarter, there was net forex loss of Rs 350 million in different line items. Further, due to inventory buildup in US market for key launches, company’s effective tax rate increased to 38% level in Q3FY13 compared to 22.6% in Q3FY12. Despite higher tax provision, company’s net profit grew 42.6% y-o-y (12.5% q-o-q) to Rs 3.35 billion (V/s INSPL est=Rs 3.03 billion). Valuations: At CMP of Rs 605, the stock is trading at P/E multiple of 23x of FY13E & 19x of FY13E & FY14E earnings estimates respectively. We believe that company is likely to maintain revenue growth momentum going forward on the back of strong pipeline in US, including 25-30 OCs portfolio, healthy market share for Tri-cor (currently 30-35%) & likely launch of ~20 products in FY14E. Further, company’s strong pipeline in ophthalmic filings (has filed ~7-8 ANDAs), controlled substance molecules (30-40 products in pipeline), bio-similar molecules has strong long term growth story intact. In branded segment Lupin is likely to launch Suprax drops in Q4FY13. However, genericisation of Antara may have negative but limited financial impact. Further, we believe that slow down in domestic market is short term phenomenon & company may revive its growth to 17-18% going forward. Hence, we maintain BUY rating on the stock with the target price of Rs 667 (Valuing at 21x of FY14earnings estimates).

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