Lupin: Earnings to grow 29% CAGR over FY15-17

Company targets $5-bn revenues by FY18, driven by organic and inorganic growth

Lupin has been FY15’s best performing stock with 115 per cent returns. Despite such a stellar performance, the Street believes the stock has plenty of steam left. According to analysts, the stock is a prime candidate for a re-rating, as the company is confident of sustaining 20 per cent earnings growth over the next four to five years. The management expects revenues to touch $5 billion by FY18, implying a 30 per cent annualised growth rate over FY14-18.

The same triggers and arguments that have contributed to the company's performance in the past couple of years continue to remain strong even in the coming years. The firm has a strong pipeline of complex generics pipeline in the US, mainly in oral contraceptives and ophthalmics. The company is also increasingly focusing in dermatology and injectables. UBS is forecasting an 18 per cent compounded annual growth rate (CAGR) in US generics revenue over FY15-17. The brokerage is building in an exchange rate of Rs 62 against the dollar and in case the rupee weakens beyond this, realisations would improve. Earlier this week, the company launched the generic version of Novartis Pharma's Exforge tablets which control hypertension, in the US.

Lupin has a strong pipeline of generics, which it intends to launch in the coming years. This should help sustain its revenue growth trajectory. While most of this growth is expected to be organic, the company also has plans to acquire firms, which will help Lupin enter new markets. Barclays, which recently met the management, says inorganic sales target of $1 billion is likely to be driven by new market entries (Brazil, Russia – with recent forex fluctuations leading to an opportune time for exploring assets) as well as newer technology acquisitions.

Other than the focus on the US and other markets, Lupin is also strengthening its presence in India, where it has entered segments where competition was limited and built a presence in inhalers. The company is now No 2 in the Indian inhalers market. It has been among the earliest to enter Japan and is reworking its sourcing plans there to cut costs. UBS expects India's revenues to grow 17 per cent CAGR over FY15-17 and 14 per cent in Japan over the same period.

Lupin is currently trading at 22 times its FY17 estimated earnings, which Barclays expects to be re-rated given the strong earnings CAGR forecast of 29 per cent over FY15-17. Sharekhan has assigned a valuation multiple of 28 times to the earnings of FY17 to set a fresh price target of Rs 2,300.