Lupin: An outlier in the pharma pack

New product launches will drive US growth, local sales will be driven by expanded field force

On a day when broader indices remained highly volatile and ended 1.23 per cent lower, Lupin's stock gained 1.3 per cent at Rs 1,529 even as its September quarter performance was below expectations. For one, despite performance falling short, revenue and profit grew sharply. Secondly, future prospects remain good.

The performance in September quarter was expected to remain soft on a sequential basis with exclusivity sales of diabetes treatment drug Glumetza coming to an end. However, on year-on-year basis, the growth remained strong.

For September quarter, Lupin posted 32 per cent year-on-year growth in revenue mainly driven by exports to the US. The company's operating profit at Rs 1,055 crore also grew 46.5 per cent year-on-year. However, other expenses were up 30 per cent and employee expenses by 33 per cent, leading to the operating profit coming lower than Bloomberg consensus estimate of Rs 1,180 crore. Thus, net profit at Rs 662 crore (up 58 per cent year-on-year) was lower than consensus estimate of Rs 708 crore. The company's sales in North America, a geography that accounts for about half of its revenue, grew 73.1 per cent providing impetus to overall growth.

With the US FDA clearing Lupin's Goa plant, the growth drivers are falling in place. Notably, macro concerns on US business of pharma companies also seems receding with US presidential election over, which is also reflecting in the 1.41 per cent gain in healthcare index on Wednesday. Vinita Gupta, CEO of Lupin, said that macro dynamics around generics business remain favourable in the US and that she remains confident on growth. Analysts too agree. Sarabjeet Kour Nangra at Angel Broking feels that pharma companies should do well in the US. She remains positive on Lupin's growth prospects. Most analysts expect Lupin to post better growth rates as compared to its peers.

For Lupin, US growth is now expected to remain strong with fresh approvals of new product launches gaining pace following clearance of Goa plant which has accounted for 50-60 per cent of Lupin's exports in recent years. Also, as Gupta highlights, the acquired Somerset plant of Gavis Pharmaceuticals has seen tenfold increase in capacity which will drive growth as the company also plans launching controlled-substances among many others. Multiple dermatology products too are lined up that will help diversify Lupin's US portfolio.

India sales, contributing a fourth to revenue, also grew 12 per cent rebounding from single digit growth seen in June quarter. The company remains committed to attaining 15-16 per cent domestic growth in FY17 as benefits from expanded field force and new product launches accrue.

Among other key geographies, sales in Japan grew over 10 per cent in constant currency, and the momentum is expected to sustain given that the acquisition of generics products from Shionogi will be completed soon.

All this bodes well for the stock, which is still trading at reasonable valuations.