Lupin posts 49% jump in Q1 net profit on the back of strong US sales

Pharma major Lupin posted a 49.5 per cent year on year (YoY) jump in its net profits for the first quarter of FY20 on the back of a 15.4 per cent rise in sales. The company’s stock reacted positively to the first quarter results, up 4.1 per cent at day’s close on the BSE at Rs 781.75 a piece. 

The company posted sales of Rs 4,355.8 crore in Q1FY20, which was up marginally from the previous quarter, but on a YoY basis it was 15.4 per cent growth. The earnings before interest, tax, depreciation and amortization (Ebitda) for the quarter was Rs 9,32.5 crore compared to Rs 7,11.2 crore in Q1FY19, up 31 per cent. On a sequential basis, however, the Ebitda dipped 2.7 per cent. Net profit stood at Rs 303.1 crore, up 49.5 per cent YoY. 

Lupin’s Managing Director Nilesh Gupta said, “This year is critical as we are committed to delivering on our strategic growth drivers, including commercialisation of complex generics, ramp-up of our specialty business and delivering on operational and cost efficiencies. Regulatory compliance remains a top organisational priority and we are making steady progress.”

The US market (which accounted for 35 per cent of sales) saw a 30 per cent YoY growth in sales to $218 mn (Rs 1,541 crore). It was down 11 per cent sequentially in constant currency terms as Q4FY19 included one month exclusive sales of generic Ranexa (anti-angina drug) versus just 15 days in Q1FY20. The company launched five new products during the quarter in the US. 

In the earnings call, Lupin indicated that pricing pressure in the US market has started to ease. "Market has stabilised in terms of pricing pressure in the US. A number of manufacturers exited products which did not make business sense for them and companies have also rationalised their product filings and launches, which too has helped," a spokesperson said.

India sales grew 9.7 per cent YoY to Rs 1,307 crore, while Asia Pacific region sales grew by 11 per cent (of which Japan grew by 9 per cent YoY and Philippines declined 8 per cent in constant currency terms). India business saw a strong sequential growth of 24 per cent due to a low base in Q4FY19 (year-end inventory clearance), said Krishnanath Munde, analyst with Reliance Securities.

India accounted for 30 per cent of Lupin's overall sales, while APAC accounted for 15 per cent of the drug major's sales. While Latin America sales grew 23 per cent, sales in  Europe, the Middle-East & Africa (EMEA) declined by 5.7 per cent. 

The sales of active pharmaceutical ingredients (APIs) was down 2.6 per cent YoY to Rs 348.9 crore. It was, however, up 20 per cent sequentially. 

Edelweiss analyst Deepak Malik noted that the company achieved tight control on costs with R&D down to 8.6 per cent from 9.7 per cent of sales in Q1FY19. Other expenses, too, declined to 18.6 per cent of sales from 19.4 per cent in Q1FY19, he noted. 

The company said that investment in R&D for the quarter was Rs 3,78.5  crore representing 8.7 per cent of sales. Cost of material increased by 310 basis points to 35.6 per cent of sales at Rs 1,550 crore. Personnel costs increased by 7.7 per cent YoY during the quarter to Rs 807.2 crore. However, as a percentage of sales, it fell from 19.4 per cent in Q1FY19 to 18.5 per cent of sales in Q1FY20. Manufacturing and other expenses decreased by 310 basis points sequentially to 27.6 per cent of sales at Rs 12,00.9 crore compared to Rs 13,26.6 crore in Q4FY19. 

Malik, however, said,"Tax rate remained elevated at 43 per cent due to unabsorbed losses at subsidiaries, partly offsetting the margin operating cost controls."