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Lupin – Stock For the Month of July 2018

Price: Rs. 889.45

Lupin Limited (“Lupin” or the “Company”) is a pharmaceutical company producing a wide range of quality affordable generic and branded formulations and Active Pharmaceutical Ingredients (APIs). The Company was formerly known as Lupin Chemicals Ltd. and changed its name to Lupin Limited in 2001 as a result of its amalgamation with Lupin Laboratories Ltd.

The Company is amongst 8th largest generic companies globally and 3rd largest Indian Pharma company by sales globally.

67% of the overall business of the Company comes from International Markets. Lupin’s global formulations business constitutes close to 84% of it’s overall business mix, and in terms of geographies, USA is its largest market outside India. The Company operates a globally integrated network of 11 manufacturing facilities spread across India and Japan.

Diversified Geographical Footprint

Financial Performance – Lupin has shown consistent growth over the last five years (i.e. 2012-13 to 2017-17). The Company’s sales over this period grew at an impressive CAGR of 16 %. Although, in FY 2018, the Company’s sale has declined 9%.

Lupin

FY 2017

FY 2018

Y-o-Y %

Revenue (In Rs. Cr.)

17,119.80

15,559.84

-9.11%

EBITDA (In Rs. Cr.)

4,118.61

2,903.20

-29.51%

EBITDA Margin (%)

24.06%

18.66%

-22.44%

PAT before exceptional items (In Rs. Cr.)

2,557.46

1,393.4

-32.92%

PAT Margin (%)

14.94%

11.03%

-26.19%

PAT after exceptional items (In Rs. Cr.)

2,557.46

251.26

-90.18%

PAT Margin (%)

14.94%

1.61%

-89.19%

EPS (Rs.) (before exceptional items)

56.46

30.13

-46.63%

EPS (Rs.) after exceptional items)

56.46

5.54

-90.19%

Net Worth (In Rs. Cr.)

13,528.64

13,613.13

0.62%

Debt (In Rs. Cr.)

7,952.11

6,876.26

-13.53%

D/E

0.59

0.51

-14.07%

ROCE (%)

19.14%

14.14%

-26.13%

ROE (%)

18.90%

1.85%

-90.24%

Note – After taking Gavis acquisition related impairment of Rs 1,400 Cr., Lupin reported loss of Rs 780 Cr. in Q4FY18.

Lupin’s U.S. business performance was encouraging as revenues grew 5% QoQ to USD 224 million in Q4FY18. It was largely led by new product approvals during last two quarters and strong flu season.

  • Moved from #6 to #4 by prescriptions in the U.S.
  • Launched 23 products in FY18 with record 11 launches in Q4 FY18
  • Brands share increased to 10% in FY18 (up 16% YoY) from 6% in FY17
  • High approval to launch ratio in U.S.

Growth in Indian Market

Indian pharmaceutical companies are facing regulatory issues and steep competition in the US market. In comparison, the domestic market exhibits a more stable demand trend. Lupin’s Indian business has grown at 11% CAGR from 2013 to 2017.

It was primarily driven by increasing market share of the over-the-counter (OTC) products, which do not need prescriptions and new product launches.

  • 8 brands enter top 300 in March 2018 as compared to 5 brands for FY17
  • Ranked #2 amongst new introductions in FY18
  • Softovac OTC gaining market share amongst bulk laxatives; Launched Corcal OTC brand.

Management Guidance – In light of the current business environment in the U.S., delayed ANDA approvals and remaining regulatory issues with Indore and Goa plant, management has guided for single digit growth in the U.S. in FY19. However, they expect FY20 to be stronger with gRanexa, gPro-air and Solosec launches in the U.S.

Note – The significant fall in the prices has made the stock attractive from a valuation perspective. While the valuation is attractive, uncertainty continues in the U.S. market.

INVESTMENT CONCERNS

Stringent Regulations

The U.S. Food and Drug Regulators (USFDA) have recently rejected many products due to reasons varying from products. More stringent safety regulations with stricter policies in terms of quality standards, supervision and sanctions perpetually present an ongoing threat for pharma companies.

Delay in key approvals from US FDA

The Company expects the U.S. generic business to witness revenue CAGR of 19% over FY16-19, led by the launch of important limited competition products in the U.S. Any delay in approval/launch of those products is likely to have a material impact on the sales forecasts for the U.S. and overall earnings growth for the Company.