With Lupin’s December 2012 quarter performance beating the consensus estimates, the stock gained almost one per cent (Sensex down 0.6 per cent), crossing Rs 600 after a gap of around a month. The performance was mainly driven by the international business which grew 51 per cent; domestic growth did so by only 7.6 per cent.
Robust growth in the US business should continue, led by the strong product pipeline. Oral contraceptives, too, will start adding meaningfully to revenue in FY14. Efforts in the ophthalmic, dermatology and asthma ranges will be long-term drivers. Domestic growth is also likely to catch up and Lupin expects to end the year with 17-18 per cent more. It is also seeing regular traction in margins and expects to end FY13 with 23 per cent Ebitda (earnings before interest, taxes, depreciation and amortisation) margins, compared to 21 per cent in FY12 (the December quarter, though, saw exceptionally high margins of 24.6 per cent).
The only concern remains rising taxes. The tax rate forecast, 22-24 per cent after its plant lost tax benefit status, has been increased to 34 per cent. On the whole, the outlook remains positive. Of 56 analysts polled by Bloomberg, 41 have a ‘buy’, 14 have ‘hold’ and only one ‘sell’ rating on the stock. The consensus target price for the stock, now Rs 604, is Rs 651.
| GOOD SHOW | |||
| In Rs crore | Q3'FY13 | 9M'FY13 | FY13E |
| Net sales | 2,466 | 6,924 | 8,990 |
| % change y-o-y | 37.6 | 36.4 | 29.2 |
| Ebitda | 605 | 1,595 | 1,895 |
| Ebitda (%) | 24.5 | 22.6 | 21.1 |
| Net profit | 335 | 906 | 1,150 |
| % change y-o-y | 42.6 | 27.3 | 32.5 |
| E: Estimates, which are prior to Q3'FY13 results Consolidated financials Source: CapitaLine Plus, Bloomberg | |||
US to drive growth
The US growth at 56 per cent is being attributed to more than expected traction seen by the launch of Tricor generics (a cholesterol lowering drug) during the quarter and antibiotic brand Suprax seeing good traction (up 48 per cent), driven by a flu outbreak. Though analysts’ concerns on Antara (another cholesterol lowering brand acquired by Lupin) sales ($35 million per annum) getting impacted after Mylan entering the market remain, the surge in Tricor generics sales is encouraging. In the three-player Tricor market, while Teva is the leader, Lupin has gained a good 24 per cent market share in a short time.
Its other earlier generic launches like Fortamet continue to enjoy limited competition, while Combivir and Ziprasidon are doing well. Lupin is likely to launch three or four generics, as well as Suprax drops, in the current quarter.
It is also accelerating oral contraceptive launches. After having launched three recently, including Seasonale and Nordette, it has got approval for the launch of Yasmin, estimated to be a $25-million product for Lupin, says Hitesh Mahida at Fortune Financials. Though the company might be able to launch six or seven oral contraceptives in FY13 (against 10 forecast earlier), Nilesh Gupta, executive director, says the company will see at least a dozen launches in calendar year 2013. The segment will, thus, start contributing meaningfully in FY14.
The Tricor generics launched in the middle of the December quarter are likely to see higher contribution and drive US growth in this quarter. Overall, Lupin plans to maintain an annual launch rate of around 20 products a year in the US. In the newer segments being explored, it could launch two or three products in FY14. Efforts are also on in the dermatology and asthma segments and launches there should help in the longer term. The region contributes to 40 per cent of Lupin’s revenues and might see this rising to 50 per cent in two to three years.
Q3: home blip
The domestic market saw subdued growth but this was in line with the trend seen by the industry. Lower antibiotic sales have dented industry growth and the chronic segment saw some impact. However, Lupin’s cardiovascular product sales grew 24 per cent. Year-to-date domestic sales growth is 17 per cent and it expects to end FY13 at similar levels. Thereafter, domestic growth is likely to sustain at 17-20 per cent, aided by 30-50 new products every year.
Japan profitability to improve
Japan, the third important region for Lupin, saw 48 per cent growth, aided by contribution from its acquisition, Irom. However, excluding Irom, Kyowa (its Japanese subsidiary) still grew a good 23 per cent. The company plans to start supplies of at least one out of the approved three products to its Japanese subsidiary from its Indian facilities in the current quarter. This should help improve margins, given the relatively low profitability in the Japanese operations.