Sell Lupin Ltd For Target Rs. 1,000 - Yes Securities
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Result Highlights
* Revenue declined by 1.6% YoY vs. our estimate of +4% YoY. US sales at US$195mn disappointed due to lower anti‐infective sales and lack of flu‐led revenues; Domestic business up 8% yoy while ROW markets (‐5.6% YoY) and API (‐22.2% YoY) saw a decline offset by EMEA (+2.7% YoY) and growth markets (+8% YoY).
* Gross margins expanded by 171 bps YoY to 65.2%, which was further aided by the decline in staff and other expenses (aided by lower R&D – Rs3.4bn vs Rs3.5bn in Q3 FY21), which led to EBITDA expansion of 504bps YoY to 18.7%
* PAT for the quarter stands at Rs4.6bn ( +18.2% YoY vs. our estimate of de‐growth of 21% YoY), primarily led by lower ETR and higher other income QoQ
Our view:
Lupin guided to double digit growth in US on the low base of FY21 as anti‐ biotic and anti‐infective sales were affected along with hardly any flu‐related sales. On the other hand, reckon Albuterol sales have been disappointing with guidance of a gradual ramp up in market share likely to keep expectation muted for Q1 FY22. Given the slow ramp up and disappointment in Q4, we factor in 15% growth in FY22 US revenues (on a reduced base) driven by Albuterol ramp up and revival of flu products in H2 FY22.
Spiriva would be a key driver of growth next fiscal but we note that it is a top 3 product for innovator; albeit, it can be a FY23 launch but given the experience with Albuterol (and inhalers in general), we expect a gradual ramp up. Domestic sales to rebound on weak base of FY21 and we expect lower R&D to assist margin; factor in improved margin by ~200bps in FY23 – in line with the guidance of 21‐22%.
We have raised our EPS estimated for FY22/23 by 10%/18%, large part of which is due to lower ETR of 28% in each year; ex‐the lowered tax rate assumption, EPS rises by 6% for FY23. Reckon complex injectables can be a more sustained driver beyond FY23, than inhaler portfolio in the next 12 months; accordingly, we still value stock at 20x on FY23 EPS and arrive at TP of Rs1,000. Near term muted expectation for H1 FY22 may result in a better entry point in the stock, in our view. SELL stays
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