Lupin turns pale, bulls hit pause

With domestic market sales to remain under pressure in September 2013 quarter as well, the revenue outlook is expected to improve only in second half of FY14

The decline in the domestic as well as Japanese market revenues impacted Lupin’s June 2013 quarter performance, which thus came much lower than Street expectations. Revenues at Rs 2,476 crore, though up 9.9 per cent year-on-year, were 7.7 per cent lower than the Bloomberg consensus estimates of Rs 2,685 crore. Net profit at Rs 406 crore, up 42.3 per cent year-on-year, was also boosted by higher other income of Rs 101 crore (forex gains of Rs 30 crore). Adjusting for forex gains profit at Rs 376 crore were slightly lower than the Street expectation of Rs 381 crore. Thus, Lupin’s stock tanked 6.5 per cent to close at Rs 828 on a day when Sensex was down marginally.

Domestic market sales, which slumped during the June 2013 quarter, are likely to remain volatile in the September quarter and hence can keep a tab on Lupin’s stock even as outlook for the US business remains good.

India, Japan disappoint
The domestic and the Japanese markets, which contribute 24 per cent and 12 per cent to Lupin’s revenues, respectively, saw revenues decline by 5 per cent and 12 per cent over the June 2012 quarter. Hence, despite US and European market revenues (at Rs 1,099 crore these account for half of total revenues) growing by a strong 29 per cent, Lupin’s consolidated revenues could grow only nine per cent, y-o-y.

Domestic revenues (Rs 589 crore) were impacted by de-stocking activities at the stockist level due to the new pharma pricing policy, while Japanese revenues felt the heat of adverse currency movement (weaker Yen versus rupee) and secondly, as some contract manufacturing orders at I’rom (Lupin’s Japanese subsidiary), too, were delayed. In Yen terms, the Japanese revenues grew 5 per cent, y-o-y.

The rest of the world (ROW) sales at Rs 122 crore grew only four per cent, y-o-y, while South African sales at Rs 75 crore (up 13 per cent), too, disappointed analysts. Hitesh Mahida at Fortune Equity Brokers observed that growth in South Africa and ROW region was very low.

Ranjit Kapadia at Centrum Broking feels that the domestic revenues will remain subdued in September 2013 quarter as well, while currency movements (both yen and dollar) will have to be watched. Therefore, he maintains his ‘hold’ rating on Lupin for now.

US, Europe to the rescue
US revenues continue to do well on the back of successful generic launches earlier. The traction in the sales of cholesterol lowering drug Tricor generics keeps on driving US growth. The other cholesterol lowering brand Antara along with authorised generics helped Lupin maintain a 70 per cent market share in the Fenofibrate capsules segment despite Mylan’s entry. The company has a strong pipeline of products for the US market, which should help sustain good growth.

During the June quarter, Lupin filed one abbreviated new drug application (Anda) and received eight approvals from the US Food and Drug Administration (FDA). Thus, cumulative Anda filings with the FDA as of June 30, 2013 stood at 177, while approvals stood at 86.

Amongst the recent generic approval, Angina treatment drug Renexa generics approval holds good promise. The company is also entitled for 180-day exclusivity sales being first-to-file. After that, Sarabjit Kaur Nangra estimates $30-40 million annual revenues from the product.

In the emerging segment, Oral contraceptives are likely to contribute more than $100 million in FY14.

Lupin is betting big on dermatology, asthma care and ophthalmology to drive future growth. In this regard, it is expected to launch Gatifloxacin (anti-biotic) eye drops in the current quarter. Analysts estimate around $20 million to be added to the company’s top line from this launch on exclusivity.

The company has also announced acquisition of exclusive US marketing rights to Alinia, an anti- diarrhoeal oral suspension. The product being new will require strong promotion, but Lupin remains confident of the success.