While Lupin’s prospects remain healthy, strategic moves like the recent one in Japan will boost growth.
Lupin’s thirst for growth seems to be growing by the day. Even as its existing businesses are doing well, the company continues to strike alliances and acquire new ones.
Interestingly, these strategic moves over the past year have already started bearing fruit. Its recent move to acquire I’rom of Japan is on similar lines, with an aim to strengthen the company’s position in the world’s second largest pharmaceutical market after America. All these should boost the company’s growth, feel analysts. Prior to the I’rom acquisition, most analysts were estimating Lupin’s revenues to grow 16-19 per cent during 2011-12. Now, they see revenue growing 20-25 per cent, in line with the official management expectation. At Rs 447, most of them are positive on the stock.
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I’ROM A GOOD MOVE
Lupin’s first acquisition, of Kyowa Pharmaceuticals in Japan during October 2007, helped gain presence in the orals market and grow at a compounded annual rate (CAGR) of 18 per cent during the past two years to reach Rs 621 crore in 2010-11 (it now contributes about 10 per cent to overall revenue). Lupin is now acquiring all of injectibles drug maker I’rom Pharma from I’rom Holdings through Kyowa, its Japanese subsidiary. The acquisition will not only help add injectibles to the existing portfolio of orals (capsules and tablets) but also increase penetration in the diagnosis procedure combination (DPC) hospitals, the fixed-rate hospitals in Japan which use more of generic products to keep cost of treatment low. There are around 1,400 DPC hospitals in Japan, constituting 35 per cent of the country’s hospital beds.
| STEADY DOSE OF GROWTH | |||
| In Rs crore | FY2011 | FY2012E | FY2013E |
| Revenue | 5,707 | 6,817 | 8,272 |
| % change | 19.5 | 19.4 | 21.4 |
| Ebitda | 1,067 | 1,248 | 1,630 |
| Ebitda (%) | 18.7 | 18.3 | 19.7 |
| Net profit | 863 | 997 | 1,324 |
| % change | 26.5 | 15.6 | 32.7 |
| PE (x) | 23.18 | 19.97 | 15.06 |
| E-estimates (Excluding I’rom) Source: Capitaline, Bloomberg, Angel Broking | |||
Against this backdrop, HSBC Global’s research report sees revenue contribution from Japan increasing to 15 per cent after the acquisition. Likewise, Sushant Dalmia at PINC Research estimates 19.8 per cent CAGR growth in Japanese revenues during 2010-13.
I’rom Pharma had sales of around Rs 350 crore in 2010-11, which are expected to grow to Rs 380 crore in 2011-12. Analysts at Deutsche Bank feel Lupin should be able to drive injectibles growth to more than 20 per cent yearly. They observe that the penetration of generics in Japan is less than 20 per cent, compared to 70 per cent in the US.
However, the Japanese government is looking to increase the penetration of low-cost generic drugs to 30 per cent in volume terms by the end of 2011-12, adds Sushant Dalmia, analyst at PINC. Notably, and though the company has not disclosed the acquisition price, analysts estimate it to be 1-1.5 times sales, which they say is reasonable.
The acquisition apart, Lupin has also entered into an alliance with I’rom Co, another subsidiary of I’rom Holdings, for clinical studies. Unlike other countries, product registration in Japan is time consuming and this alliance will help Lupin’s subsidiary, Kyowa, expedite the process.
DOMESTIC BIZ GROWS FAST
At the domestic front, Lupin’s growth is being led by its strong chronic product range, comprising of anti-asthma, anti-tubercular and cardiovascular items. Its tie-up with Eli Lilly for marketing insulin contributed Rs 18 crore to sales during August and September. These have helped the company report a 22 per cent growth in sales as compared to the industry’s 14 per cent during the quarter.
Nomura’s November 17 report observes that Lupin’s sales growth continues to be higher than that in the Indian pharma market during October as well. They see Lupin and Glenmark to be the least affected by the National Pharmaceutical Pricing Policy, which proposes to bring more drugs under price control.
US BIZ PROSPECTS REMAIN HEALTHY
In the US market, too, Lupin has entered into a few deals. Among these is a $58-million research and development agreement with Medicis Pharma, for which it got an upfront payment of $20 mn in the September quarter. Besides, Lupin will also get royalty for its products sold by the US-based company in markets across the world (excluding India). The Medicis deal apart, Lupin is getting regular quarterly payments of $1.5 mn (in addition to an upfront payment of $10 mn in February) from Salix Pharma, as it has granted its rifaximin technology to the latter.
These, along with five product launches (including one oral contraceptive) helped Lupin’s American sales grow 35 per cent year-on-year during the September quarter. Branded growth was led by anti-bacterial brand Suprax growing 43 per cent.
On the flip side, the launch of Fortamet (an anti-diabetic product) in October on an exclusivity basis had to be withdrawn due to litigation. While this may have a marginal impact on sales estimate of the Street, analysts at Emkay Global say other product launches on an exclusivity basis such as Requip XL, Ambien CR and Asacol can bring positive surprises.
Moving forward, analysts at Angel Broking say the company is scouting for more acquisitions (which could be of a big ticket size) and alliances/partnerships. These should help in getting closer to the management’s sales outlook of $3 billion by 2013-14.
