Lupin: Earnings upgrades likely after stellar Q1

Strong product pipeline to sustain sales growth of 25% in FY15, margins likely to settle at 30%

Lupin's earnings estimates for FY15 are headed for an upgrade, after its strong June quarter numbers. India's third largest pharmaceutical company has benefited hugely from a pick-up in sales in the US. In the quarter, Lupin's revenue grew 37.5 per cent to Rs 3,284 crore, driven by strong growth in India and the US. While competitors are struggling to hold on to double-digit sales in India, Lupin's revenues have grown 29 per cent year-on-year (y-o-y) to Rs 761 crore. India accounts for 23 per cent of the company's total sales. Given its strong product pipeline, Lupin's US sales (including IP income) have grown 57 per cent to Rs 1,605 crore. US accounts for 50 per cent of the company's total sales.

The sharp uptick in growth during the quarter has been driven by the generic version of Eli Lilly's Cymbalta, delayed release tablets for the treatment of a major depressive disorder. Lupin launched the generic version of Cymbalta in the US in December 2013. Sales in Japan have grown 17 per cent y-o-y to Rs 341 crore. Two acquisitions - I'rom and Kyowa - in Japan have added to the company's global footprint. Nilesh Gupta, managing director, expects sales to grow 25-30 per cent in FY15, driven by a strong product pipeline in the US and strong domestic growth. The company has filed 200 ANDAs (abbreviated new drug applications). Lupin launched 16 products in the June quarter and expects the momentum to continue, as it has the biggest first-to-file pipeline, too.

The big surprise has come from the sharp uptick in margins, boosting operating income up 65.6 per cent to Rs 1,143 crore. Margins hit a life-time high of 34 per cent during the quarter, a y-o-y increase of 960 basis points, on lower manufacturing and employee costs. However, the tax rate in the US has increased. Analysts are expected to upgrade the stock, going by the strong earnings trajectory and robust outlook for the year. Ranjit Kapadia of Centrum Broking says, "Generics players have done well in the US, as there has been a delay in the launch of first-to-file products. Revenues in FY15 are expected to grow above 25 per cent and operating margins should sustain at 30 per cent levels." The stock is currently trading at 22 times its estimated FY16 earnings and analysts believe an upgrade is likely after the current quarter.