Lupin: Sweet pills from US, India

A strong pipeline of products will enable the company to sustain high growth rates

Drug maker Lupin’s consolidated net profit jumped 39.8 per cent year-on-year to Rs 406 crore for the quarter ended September, helped by strong growth in the US market (a third of total revenues) and active pharmaceutical ingredient (API) business. Foreign exchange gains of Rs 74 crore (included in other income of Rs 81 crore) and dividend from subsidiaries helped; the year-ago quarter’s other income was Rs 4 crore. The earnings before interest, taxes, depreciation and amortisation (Ebitda) margin (includes other income) was 28.2 per cent, up 500 basis points year-on-year.

Markets like Europe and India saw gains in revenues, while Japan saw revenues contract six per cent (versus 12 per cent fall in the June quarter), year-on-year. Thus, consolidated revenues rose 17.5 per cent year-on-year to Rs 2,631.50 crore. The performance was largely in line with Street estimates. Analysts had expected profits of Rs 396 crore and net sales of Rs 2,683 crore.

“Three things primarily helped achieve the growth during the quarter. One, the quality of our business in America has steadily improved. We have launched six to eight products in the US during the first half of the financial year and hold ground with our existing products. Besides, the API business and the foreign exchange has helped,” Vice-Chairman Kamal K Sharma told Business Standard.

Formulation sales in the US rose 32 per cent year-on-year to Rs 1,035 crore, while Europe revenues grew 18 per cent year-on-year to Rs 74 crore.

Lupin’s US brands made up 10 per cent of total US sales, whereas the generics contributed 90 per cent.

Sharma says while the generic business is growing consistently in the US, the company is now eyeing similar growth in its branded business (which saw revenues fall in the September quarter). It has inked strategic licensing agreements to promote Locoid lotion as well as Alinia for oral suspension to US pediatricians. Both are on the market and the company.

The company has also launched low strength versions of Antara, while the anti-bacterial brand, Suprax, having broader dosage forms, will also boost branded sales as the Flu season picks up.

In the generic segment, the company launched five products in the US and is expecting to launch another 10 by FY14-end, says Sharma. He added, of these ten, the company is expecting 180 days of exclusive marketing rights on at least two.

The revenue benefits of the recent anti-bacterial ophthalmology product on six months exclusivity will also be seen. In the limited competition oral contraceptive space, while the blockbuster, Yasmin,,has been launched, the approval for Yaz is awaited. The current basket of oral contraceptives is likely to contribute $35-40 million in FY14 and $100 million in FY15, says Nilesh Gupta, Managing Director. The dermatology range is also likely to be launched soon. Dr Kamal Sharma, chairman, says they plan to transform the company as a speciality company in the US by diversifying into inhalers, injectibles and controlled substances.

Despite trade challenges in the domestic market (a fourth of revenues) due to the new pricing policy and issues related to trade margins, formulation business grew nine per cent year-on-year to Rs 663.5 crore. Nilesh Gupta says Lupin will regain its 18-20 per cent growth and the company will maintain its run-rate of 38-40 launches, including introduction of 12-14 molecules.

API sales grew 20 per cent year-on-year to Rs 286 crore.

However, Lupin’s Japan sales (12 per cent of overall revenues) fell six per cent to Rs 309.3 crore. While adverse currency movement affects Lupin’s Kyowa, I’rom is being affected by volatility in contract manufacturing. The company is filing for launches in Japan to address the issues, says Nilesh Gupta. Ranjit Kapadia of Centrum Broking expects contract manufacturing to pick up in the second half of FY14.

Ebitda margins are likely to range 25-30 per cent. While the top line is seen growing yearly by 18-20 per cent, profit growth will be slightly higher at 20-25 per cent, feels Lupin. The tax outgo, though higher than a year ago, is likely to remain at 30 per cent.

With a strong product pipeline for developed markets like the US and Europe, and India sales recovering, prospects continues to stay strong.

Rikesh Parikh of Motilal Oswal Securities says, “We expect Lupin to report stronger operational performance in FY14/15 on the back of a strong product pipeline for the US, including higher contribution from oral contraceptives.” He maintains buy rating on the stock. Ranjit Kapadia, too, maintains a buy, with target price of Rs 1,136. After results, UBS has a target price of Rs 1,100.

On Wednesday, shares closed at Rs 901.90 on the BSE, up 1.5 per cent from previous close.