Lupin Laboratories' move to acquire Eli Lily's Puerto Rico plant is a strategic move to combat a depressed international market for cephalosporins. According to the company, the overseas plant makes oral cephalosporins --largely ceph-alexin and cefaclor based formulations.
Both of Lupin's cefaclor and cephalexin facilities have US FDA approvals and it had tied up with Merck Generics and Fujisawa of US to market cephalosporin products. Margins in this business had been affected as international prices of cephalosporins crashed by 40 per cent in the last one year.
Cephalexin prices too have fallen from about $120-130/kg to $70-80/kg in the same period. Cefaclor prices in non-patent applicable countries are about $550/kg while in countries like US where patents are applicable, it is around $1000-1300/kg. Thus Eli Lily plant can act as a sourcing base for Lupin, which will improve export realisations. Its operating profit margin is currently at 13.4 per cent down form 14.2 per cent in 1996-97.
However, Lupin is entering the exports market with cefotaxime (injectible cephalos-porin) this year, and export realisations exceed the domestic one by about $7 per vial.
The global cephalosporin segment is growing at 13-14 per cent, and volume growth in this segment may offset loss of margins.
However, Lupin's high gearing with a debt to equity ratio of 2.1:1 in 1996-97, brings into question the mode of funding the acquisition.
The funds may be raised from the sale of its stake in Lupin Agro and disposal of some real estate, according to Shahina Mukaddam, analyst, Birla Marlin Securities. Moreover, Lupin's promoters earned Rs 50 crore from the Lupin Agro deal, which will be utilised to repay loans taken by them from Lupin.
Warrants issued to promoters in 1993 are due for conversion in June 1998 and this mode too can be adopted for funding the acquisition.
