For 1QFY2012, Lupin reported in-line results. In spite of just 11% yoy growth reported in advanced markets, which is one of the key markets for the company, Lupin reported revenue growth of 17.6% yoy to Rs.1,543cr. The domestic market registered growth of 17% yoy during 1QFY2012. We maintain our Buy recommendation on the stock.
In-line numbers, outlook intact: Lupin reported net sales of Rs.1,543cr (Rs.1,312cr), up 17.6% yoy, above our estimate of Rs.1,533cr. Gross margin dropped to 59% (61.6%), in-line with our expectations. This led to OPM contracting to 17.5% (20.0%), lower than our estimate of 18.1%. Lupin reported single-digit net profit growth of 7% yoy to Rs.210cr (Rs.196cr), below our estimate of Rs.204cr.
Outlook and valuation: We expect net sales to grow at a 20.4% CAGR to Rs.8,350cr and earnings to grow at a 24.0% CAGR to Rs.29.7/share over FY2011??13E. Currently, the stock is trading at 20.1x and 15.3x FY2012E and FY2013E earnings, respectively. We maintain our Buy recommendation on the stock with the revised target price of Rs.593.
Revenue growth continues, up 17.6%: Lupin reported net sales of Rs.1,543cr (Rs.1,312cr), growth of 17.6% yoy, higher than our estimate of Rs.1,533cr. Sales in the advanced markets grew by 11% yoy to Rs.701cr during the quarter.
The company??s key market, US remained softer during the quarter, registering 7.7% yoy sales growth to Rs.535cr. On the other hand, Japan, Lupin??s second most important market, grew by 28.3% yoy and contributed 11% to the company??s revenue. On the domestic front, India formulation sales grew by 17% yoy to Rs.496.9cr (Rs.424.2cr), contributing 32% to overall sales.
On the regulatory front, during the quarter, the company filed four ANDAs, bringing the cumulative filings as of 1QFY2011??12 to 152, of which 51 stand approved by the USFDA.
OPM dips by 250bp yoy : During the quarter, gross margin came in at 60.0% (61.6%), in-line with our expectations. This led to OPM contracting to 17.5% (20.0%), lower than our estimate of 18.1%. The decline in OPM was significant than the drop in gross margin on the back of 23.1% and 23.4% yoy growth in staff cost and other expenditure, respectively.
Net profit growth in-line with our estimates: During the quarter, Lupin??s net profit grew by 7% yoy to Rs.210cr (Rs.196.3cr), in-line with our estimate of Rs.203.8cr. Growth in net profit was higher than growth in operating profit because of lower tax and interest expenses, down 18.1% and 29.2%, respectively, during the quarter.
- For FY2012, management has reinforced ~20% growth in the Indian market. Lupin also added ~Четыресто MRs during the quarter, increasing its field force to 4,000 MRs.
- For FY2012, the company plans to file over 30 ANDAs in the US market.
- The company expects to launch 8??10 products in FY2012, including 3??4 OCs (approvals expected in 4QFY2012). Key launches expected in FY2012 include AG launch of Femcon Fe in September 2011, Tramadol ER and the likely launch of Geodon in March 2012 (shared exclusivity among four players).
- On Allernaze, although the company is working across the different facets, it expects a possible launch by 4QFY2012.
- Management has indicated a tentative launch of OCs in 2HFY2012. However, it expects OCs to start contributing materially from 2HFY2013. Currently, the company has filed 25??30 OC ANDAs in the US.
- During the quarter, Lupin booked US$1.5m licensing income from Salix and indicated that this income is likely to recur quarterly over the next eight quarters. Lupin will also book US$20mn licensing income from Medicis in 2QFY2012.
- The company is scouting for acquisitions, which are expected to be of a big ticket size going forward. The company would also look into alliances and partnerships for future growth.
- Management has indicated revenue guidance of US$3bn by FY2013??14.
- US market ?? The key driver: The high-margin branded generic business has been the key differentiator for Lupin in the Indian pharma space. The company has further cemented its position in the segment by acquiring rights for Antara product. Lupin reported sales of US$130.6mn in FY2011.
On the generic turf, Lupin is currently the fifth largest generic player in the US in terms of prescriptions, with 14 out of 30 generic products ranking no.1 and 27 out of its 30 products in the top-3 by market share.
In the OC segment, Lupin has filed 25??30 ANDAs and expects to get approvals from 2HFY2012. As per management, OCs could contribute US$100mn to the company??s top line over the next 2??3 years.
As of now, cumulative filings stood at 152, of which 51 have been approved. Lupin plans to launch 10 products in the US in FY2012 and another 80 products over the next three years. As of FY2011, Lupin had 60 Para IV, of which 15 are FTFs (the company is the exclusive holder in three of them: Glumetza, Fortamet and Cipro DS), addressing a market size of US$8bn. Overall, we expect the US market to report a 28.8% CAGR over FY2011??13E.
- Domestic formulations on a strong footing: Lupin continues to make strides in the Indian market. Currently, Lupin ranks No.5, climbing up from being No.11 six years ago. Lupin has been the fastest growing company among the top-5 companies in the domestic formulation space, registering a strong CAGR of 20.0% over the last three years. Six of Lupin's products are among the top-300 brands in the country. Lupin introduced 41 new products in the Indian market in FY2011 and has a strong field force of 4,000 MRs.
- First-mover advantage in Japan: With Kyowa??s acquisition in FY2008, Lupin figures among the few Indian companies with a formidable presence in the world??s second largest pharma market. The Japanese government has introduced a new policy and regulatory reforms to increase generic drugs?? contribution from a relatively low 17% in CY2007 to 30% of prescriptions by CY2012. This is estimated to open up a US$10bn opportunity for global generic players. We expect Lupin to post an 18.8% CAGR over FY2011??13E in the Japanese market, and the region is likely to contribute 11% to its FY2013E total sales.
We expect the company??s net sales to grow at a 20.4% CAGR to Rs.8,350cr and earnings to grow at a 24.0% CAGR to Rs.29.7/share over FY2011??13E. Currently, the stock is trading at 20.1x and 15.3x FY2012E and FY2013E earnings, respectively. We maintain our Buy recommendation on the stock with the revised target price of Rs.593.
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