30 May 2020
4QFY20 Results Update | Sector: Healthcare
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
326.3 / 4.6
882 / 646
TP: INR1,000 (+15%)
Operationally weak; Outlook for niche products promising
Almost done with resolution of regulatory issues at key sites
Financials & Valuations (INR b)
2020 2021E 2022E
153.7 167.8 188.2
23.5 28.5 35.4
9.0 13.3 18.3
9.0 11.2 13.5
EBIT Margin (%)
19.8 29.5 40.5
Cons. Adj. EPS (INR)
-11.4 48.7 37.1
EPS Gr. (%)
276.7 296.8 326.9
Weak performance for the quarter
Revenues in 4QFY20 were down 1.1% YoY to INR38.5b (v/s est. INR41.4b),
due to decline in US sales, partially offset by growth in the DF business.
6.8 10.3 13.0
US sales were down 13.5% YoY to USD212m (42% of sales). APAC sales were
-119.0 35.7 26.0
down 16% YoY to INR1.4b (4% of sales). On the other hand, DF sales (31% of
sales) were up 13.3% YoY to INR11.9b. Also, EMEA (Europe, Middle East and
44.0 29.5 21.5
Africa) sales were up 7.4% YoY to INR3.5b (9% of sales). API sales increased
16.8 14.4 11.4
12% YoY to INR3.3b (9% of sales).
Div. Yield (%)
FCF Yield (%)
Gross margin (GM) declined 610bp YoY to 63.5% led by change in the
product mix. EBITDA margin at 13.7%, was down at similar rate of 630bp YoY
After three years of earnings decline, we expect Lupin’s (LPC) earnings
growth to improve over FY20-22E, based on robust ANDA pipeline (including
limited competition products like g-Albuterol/g-Fostair) and sustained
outperformance in the domestic formulation (DF) market. Accordingly, we
expect return ratios to form a trough in FY20, and thereafter, to be on an
uptrend. We are yet to see benefit of the cost rationalization exercise
implemented by LPC.
We have cut our EPS estimate by 14.5%/5% for FY21/FY22E to factor in the
COVID-19 led slowdown in DF and delay in better operating leverage. We
value LPC at 22x 12M forward earnings to arrive at a price target of
INR1,000. We remain positive on LPC due to (a) better visibility of
approvals/increased market share in niche products, and (b) the company
reaching end of remediation measures at its key sites under regulatory
Shareholding pattern (%)
Mar-20 Dec-19 Mar-19
FII Includes depository receipts
as higher employee cost (+170bp YoY as % of sales) was partially offset by
lower other expenses (-130bp YoY as % of sales). EBITDA came in at INR5.3b
(v/s est. INR6.4b), down 33% YoY.
Lupin had exceptional items, which included (a) profit on divestment of
Kyowa Pharma (INR1.2b), (b) impairment of intangible asset (INR95m), and
(c) loss on divestment of Kyowa Criticare – INR284m. It also had forex gain of
INR1.3b for the quarter.
Adj. PAT was flat at INR2.7b (v/s est. INR2.2b), due to lower tax rate.
FY20 sales/EBITDA/Adj. PAT was at INR154b/INR24b/INR9b. Revenues were
up 4.8% while EBITDA/Adj. PAT were down 8%/11% YoY.
No queries are pending for g-Albuterol; expected launch in 2HFY21. g-Fostair
should also be launched in Europe in 2HFY21 (market size: USD500m).
Despite being a 6-player market, the US is facing shortage of Albuterol.
R&D spend should be similar at absolute level of INR15b for FY21.
EBITDA margin is expected at 19-20% for FY21 without COVID/Forex impact.
Somerset would be LPC’s first site to be offered for re-inspection followed
by Goa and Pithampur.
LPC has 13% market share with a target to reach 20% for g-Levothyroxine.
Highlights from management commentary
Tushar Manudhane - Research Analyst
(Tushar.Manudhane@MotilalOswal.com); +91 022 6129 1536
Hitakshi Chandrani - Research Analyst
Bharat Hegde - Research Analyst
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.