Lupin: Steady growth

Lupin turned in good numbers this quarter across geographies, slightly above analyst expectations.

Net revenues were up 25 % y-o-y to Rs 1165.8 crore and operating profits were up 20% to Rs 215 crore. Operating margins have come off a bit this quarter (by about 70 bps y-o-y) to 18.4%. Research and development expenses (Rs 82 crore – up 40 % y-o-y) trended up this quarter to 7.4% of net sales compared to 6.6% in Q2FY09 but are expected to normalize as they tend to be lumpy, according to an Edelweiss report. PAT grew by 44% y-o-y and 13% q-o-q because of lower taxes for the quarter.

Operational growth

Formulations sales grew 30% y-o-y to Rs 920 crore with US and Euro region sales up 28 % to Rs 353 crore. US business growth was especially strong clocking in at 20 % in constant currency terms. The higher margin branded formulation sales were up 83 %. Branded generic sales in the US were up 60 %.  Domestic formulations sales growth was about 18.5% with branded formulation sales up 15%.

The company saw a Rs 250 crore boost to operating income from sale of US rights to its bioadhesive technology platform, rifaximin, to Starlix.

Lupin has carved a strong presence in the US with 9 of 22 launched formulations leading sales and 19 products among the top 3. The company has launched only one product in the past six months and expects to get approval for another 3-4 launches in H2FY10. It has a pending pipeline of 63 products. This is a worry as incremental growth will have to come off new product launches, believes Edelweiss.

Outlook

It has commenced marketing of Antara (fenofibrate 43 mg and 130 mg capsules), which it recently purchased from Oscient Pharmaceuticals for $ 38.61 million (including products and inventory).

The cardiovascular drug reported $ 70 million sales in 2008 (IMS Dec 2008). Lupin has three products in the branded segment of the US market currently, Suprax, Allernaze, and Aerochamber with their sales totaling $ 74 million in FY09.

Antara revenues could potentially double the US branded sales for the company although other generic players are in the fray. All eyes are therefore on new product sales numbers in the US, and evidence of strong numbers could trigger earning estimate upgrades.

According to brokerage house Edelweiss’ estimates, the stock currently trades at a P/E of 15.2x to FY11 estimated EPS of Rs 82.4. It closed at Rs 1252.30 on Oct 27, 09.