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Spark Capital: Lupin - 3QFY13 results reviews




Spark Capital Advisors(India) Private Limited


05 Feb 2013





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US business on a roll; Maintain ‘Buy’ Lupin reported a robust 38% topline growth and ~180bps margin improvement in Q3FY13 driven by strong Suprax and generic Tricor sales. We expect Lupin’s strong performance to continue in FY14-15 on the back of a robust US generic pipeline (5-6 potential limited-competition opportunities for FY14), higher number of ANDA approvals post GDUFA implementation and continuing above-industry domestic growth. High tax rates (38% for current quarter, guidance of 34-35% for FY14) remains the only dampener. Maintain ‘Buy’ rating with a target price of Rs. 681 (20x FY14E EPS of Rs. 34.1) Takeaways from post-results conference call: US generics business grew 66% yoy to $144mn driven by generic Tricor launch and strong volume share gains in ziprasidone, gCombivir, quetiapine and gFortamet. Limited competition opportunities for FY14-15 include generics of Zymaxid, Trizivir, Ortho Tri-cyclen Lo, Ranexa, Renvela and Niaspan Generic Tricor remains a 3-player market currently. Mylan recently received approval to launch the product. Antara sales has remained flat post-genericization of Tricor. Mylan recently received approval for generic Antara. Lupin has a temporary restraining order against a Mylan launch. Next hearing in the case is scheduled for March. Lupin is still evaluating whether to launch generic Yasmin (approval received in Dec 2012) given the product liability issues the innovator (Bayer) is currently facing US branded segment sales for the quarter was $48mn. Suprax sales grew 48% on the back of a strong flu season. Suprax chew tabs was launched in November. Management expects to launch Suprax drops in Q4FY13. Management reiterated its intent to acquire brands to sustain growth in its US branded business Domestic formulations growth was lower at 14%, in-line with the slowdown witnessed in the overall industry. Cardiovascular and diabetic segments grew 23% for Lupin, above industry growth rates of 13-14% in these segments Based on a reassessment of the economic feasibility of its pending ANDAs in the backdrop of the new user fees (GDUFA), the company withdrew 16 ANDAs during the quarter R&D expense for the quarter was Rs. 2.4bn (9.7% of sales, 7.5% for 9MFY13). This includes Rs. 180mn of user fee (GDUFA) expenses. Going forward, R&D expense was guided at ~7.5% of sales Other income of Rs. 265mn for the quarter includes Rs. 230mn gain on forex transactions

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