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Going strong, but profit concentration risk Strong beat in Q4FY24

Lupin’s(LPC IN) Q4 results were well ahead of our expectations – Revenue came 2% below, but better margins led to EBITDA and PAT (adjusted for one-time impairment of intangible assets) beating our estimates by 10% and 27%, respectively. We believe that the margin upside came mostly from better product mix in the US, from higher contribution from gSpiriva. We estimate ~USD 40mn high-margin gSpiriva sales in the quarter.

gMyrbetriq, gSpiriva drive upgrades

Pick-up in gSpiriva and lower-than-expected competition in gMyrbetriq launched at-risk will drive US business growth in H1FY25. We raise our FY25E estimates for both the products to USD 150mn and USD 115mn, respectively. However, one cannot ignore the fact that profit concentration risk has increased significantly – these two products account for 50-60% of FY25E profit. Risks of adverse litigation outcome and additional competition in these products are not immaterial.

US pipeline strong, but would they be sufficient?

There are other interesting products in the US pipeline such as gSlynd, gJynarque and gRisperdal Consta in the near-term and peptide products and biosimilars in the medium-long term. However, we are not sure if they can completely compensate for and further provide growth in overall profits, if gSpiriva and gMyrbetriq opportunities wane simultaneously

Other businesses broadly as expected

Domestic, EMEA and RoW business performance came in broadly as expected. We expect these businesses to sustain high-single-digit to low-double-digit growth rates.

Valuations: Maintain Accumulate with TP of INR 1,820

We raise FY25E core EPS by 16% and FY26E by 7%, with upside coming in from gMyrbetriq and gSpiriva. LPC trades at 27.8x our FY25E core earnings. We believe that the risk-reward is still on the favorable side. Maintain Accumulate with unchanged TP of INR 1,820. Potential authorized generic competition in gSpiriva and additional competition in gMyrbetriq are key risks

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