Lupin: Any correction an opportunity for investment

Lupin after hitting an all time high of Rs 1,003 on 3rd March though may have corrected however looking at strong prospects the correction is a good opportunity for investors. The stock has been an outperformer for quite as while in the back of growing Niche products pipeline in the US. Compared to the BSE healthcare index that has lost almost 5% over its closing price on 28th February' 14, Lupin is trading marginally up at Rs 962 levels during the same period.

The company recently got approvals for the launch of anti-bacterial Doxycycline and Ciprofloxacin generics, which is positive. The Ciprofloxacin oral suspension though has a smaller market size of $8.6 million; Lupin being the first filer is likely to face limited competition in the product. Doxycycline on the other hand may see multiple players in the market, However, Lupin is likely to garner strong benefits in the back of Supply constraints with the generics and hence innovator Acqua Pharma still holding maximum (73%) market share as per IMS data. Analysts at Nomura feel that this opportunity could fetch Lupin $20 million revenues in FY15. Though others as Sarabjit Kaur Nangra at Angel broking may be seeing lower ($5 million) revenues, however the fact that the approval has come as a surprise for most analysts and is not generally factored into their estimates is positive.

The company's US sales and profitability is being driven by a strong pipeline of niche products. The March' 13 quarter revenues are likely to be driven by generic launches of Trizivir (HIV treatment drug), Triplix (cholesterol lowering), Cymbalta (anti-depressant drug) and Zymaxid (Antibacterial eye drops). While the first three were launched in end of December' 13 quarter, the eyedrops were launched in the start of the quarter). Zymaxid and Triplix generics have been launches on exclusivity and even after the 180 day exclusivity ends the products are likely to see limited competition. Cymbalta has seen its market share increase by 30 bps to 11.5% as per recent IMS data.

Amongst the interesting launches one awaits for Generic launch of Niaspan (the cholesterol lowering drug) in the near term. This will strengthen the company's Lipid control drug portfolio. LUPIN that has Brand Antara for the same indication, had also launched authorized generics to counter competition. In the same segment Lupin generic launches of Tricor, Triplix continue to provide momentum.

The company is building up its oral contraceptive portfolio, which will get a boost from interesting launches as those of Yaz and Loestrin.

Besides the company's R&D investments remain higher to focus on niche specialties in US like dermatology, respiratory, opthalmics, etc. Hitesh Mahida at KR Chowksey Shares and Securities says that Lupin three products in the pipeline (two in respiratory and one in dermatology could get launched by 2016-17 strengthening its niche Dermatology and Respiratory range.

The company is expected to maintain its run rate of close to 20 ANDA launches in the US every year.

Apart its Japanese business (13% of revenues) that is currently seeing growth under pressure is likely to perform better over a period of time. The $12-15 billion generics likely to go off patent in Japan over next three years will provide the impetus.

Company's domestic growth affected by NLEM is now improving and likely to recover completely by June' 14 quarter.

In the backdrop most analysts remain upbeat on the stock. Arvind Bothra at Religare Capital markets says that Lupin remains our top pick on high growth visibility (23% CAGR growth). He already had rolled over his December'15 target price to Rs 1,160 (versus Rs 1,115 earlier). Ranjit Kapadia at Centrum has a target price of Rs 1,230 while analysts at Nomura retain BUY ratings with Target price of Rs 1,053. The consensus target price for the stock polled by Bloomberg post December'13 quarter results stands at Rs 1055 implying 9.66% upside from here.