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US approvals key to sustained momentum

Result Synopsis

Lupin reported an in line quarter with recovery in US aided by growth across emerging markets. A 30% QoQ jump in US led to improved gross (also helped by price hikes in India YoY) and EBIDTA margin despite India business staying flat YoY as diabetes and cardiac in-licensed products experienced erosion. While company had alluded to cost cutting in previous quarter, higher other line expenses precluded any headline cost savings.

Lupin appeared confident in maintaining 12-13% margin by 4Q even without Spiriva. This is on back of continued moderation in US price erosion in oral solids coupled with focus on cost cutting across staff, other expenses by end of 4Q. New launches pipeline across US also appears stronger and closer to fruition even as Spiriva remains key to our margin assumption of 16% in FY24. Company has responded to CRL on the product and awaits FDA nod in what is a launch-ready supply chain. Several other assets (Dulera, Darunavir, Nascobal spray) would also boost US business by H2 FY24, thereby supporting mid-teens margin next year. India business would gradually rebound as portfolio excluding in-licensed products grows in line with market. We marginally tweak FY24 estimates by 2.4% and retain a positive bias as presumption of a 12-13% margin by 4Q would imply broadly recovery is on track. Maintain ADD based on 26x FY24 EPS (vs 25x earlier) with revised TP Rs750 (earlier Rs730).

Result Highlights

* Sequential rebound with 11% QoQ growth driven by US (+32% QoQ) as shelf stock adjustment of previous quarter is now behind

* India was flat YoY due to expiry of diabetes and cardiac products excluding which growth was inline with market

* Margin improved to 10.5% on back of improved gross margin of +170bps QoQ to 58.7%

* Staff cost flat YoY and other expenses up 7% YoY and did not reflect the cost cutting measures alluded to in 1Q call due to upshift in other line expenses

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