No major worries for Lupin

Analysts don't see any big impact from European anti-trust fines

The European anti-trust commission's imposing a Rs 324-crore fine on Lupin failed to deter investor sentiments. In fact, the stock has traded two per cent higher on the bourses since the news broke. Reason: the company's strong domestic and export growth and the fact that the amount is not big enough to worry about.

While Lupin is likely to appeal, the fine is equal to 18 per cent of Lupin's FY14 consolidated profits. Analysts say if it is made to pay, Lupin's stock might see some volatility. However, it will be a one-time payment accounted for under extraordinary items, so it will not impact the forward earnings estimates, says Ranjit Kapadia at Centrum Broking. Lupin had earned Rs 200 crore in the past from sale of the anti-hypertensive product in question, so the net loss is not huge.

Importantly, Lupin's prospects remain strong. Its domestic growth - five per cent in FY14 over FY13 - is likely to jump to 15-20 per cent in FY15. The US growth is likely to be led by existing products and new generic launches, as the company expands its niche segment product portfolio.

Apart from the generics product launch run-rate of 20-25 a year in the US, the growth is likely to be led by the speciality product range, which the company is developing for the world's largest health care market. While the respiratory product range might be slightly distant, currently the firm is building up its dermatology and oral contraceptive (OC) portfolio. With the resumption of OC approvals in the past six months (eight approvals and one launch), Barclays analysts believe OCs will become a major growth driver. The company might see peak revenues of $50 million by year-end ($125 million in the next 18-24 months) from OCs alone.

For the quarter ending June 2014, analysts at Bank of America Merrill Lynch expect Lupin's sales growth to be driven by sustained momentum in US generic (24 per cent growth) and recovery in the domestic market (14 per cent growth). Credit Suisse analysts expect the earnings before interest, tax, depreciation and amortisation (Ebidta) to drop six per cent sequentially on weaker margins. However, on an year-on-year basis, they expect pre-tax profits to rise 21 per cent and Ebidta, 51 per cent. For FY15 and FY16, core earnings growth is pegged at 18-19 per cent.