13 May 2015
4QFY15 Results Update | Sector: Healthcare
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel.Per (%)
Free float (%)
Financials & Valuation (INR b)
EPS Gr. (%)
2015 2016E 2017E
TP: INR1,950 (+15%)
Transient earnings moderation – long term outlook intact
Lupin’s (LPC) 4Q PAT at INR 5.5b (-1% YoY) was 14% below est. on sharp revenue miss
(10% below) and resultant negative operating leverage hurting margins (25.1% vs
27.9% est). EBITDA at INR7.7b (-5% YoY) fell 19% below expectations while lower tax
rate (20% vs 30% est) was a respite.
Slowest revenue growth in last 20 quarters:
Flat revenue growth in 4Q (INR30.5b)
was a disappointment, marred by fewer US launches and fx headwinds (net impact of
INR367m). Lower than expected market share in gCelebrex and sharper base business
price erosion led to weak US sales (-6% YoY, 45% of sales). US branded business (5% of
sales, flat YoY) is likely to see contraction due to generic competition in Suprax. India
growth was robust (+15%) while Japan growth (down 9% YoY, +5% in JPY terms) was
hurt by fx movement. EU/RoW growth (+12/3%) was also below est.
Margins contract on unfavorable operating leverage:
Gross margin improved +81bp
YoY due to hedging benefits while surge in R&D spend (+26% YoY) and higher staff
cost (INR 400m – accturial impact) dragged overall EBITDA margins to 25.1% (down
142bp YoY), at six quarter low. We anticipate annualized EBITDA margins to improve
by 180bp over FY15-17E (to 29.2%) led by high margin US launches (including
gNexium, opthalmics and other Para IVs) and steady improvement in domestic
profitability (chronic focus).
Analyst meet takeaways:
(a) M&A - key growth driver; to target bigger size
acquisition in complex generic space (b) Acquired front end branded generic company
in Brazil (USD 30m sales); deal size less than USD 75m, (c) To file first inhaler product
in CY16 for US & Japan, (d) 5 out of 6 facilities successfully cleared by US FDA in FY15
(e) Expect 15-16 launches in FY16 in US including – Lumigan & Lansoprazole ODT (1Q),
Nexium (2Q), Welchol (3Q), Glumetza (4Q) and Namenda.
Valuation and view:
We trim our FY16/17E EPS estimates by 8/9% respectively mainly
to factor (a) Suprax generic competition and (b) delay in US launches (including
gNexium). We believe delays in US approvals is a transient setback to structurally
strong growth story for LPC (est 19% EPS CAGR) as we could see bunching up of
approvals going ahead. Hence, our target price is lowered to INR 1950 (26x FY17E).
Strong Balance Sheet (net cash), high return ratios to help sustain multiple premium.
M.Cap. (INR b)/(USD b) 756.7/11.8
Avg Val (INRm)/Vol ‘000 1,146/760
Investors are advised to refer through disclosures made at the end of the Research Report.
22 3982 5584
(Amey.Chalke@MotilalOswal.com);+91 22 3982 5423
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