Add Lupin Ltd for the Target Rs 2,500 by Emkay Global Financial Services Ltd
Lupin delivered yet another quarter of earnings outperformance vs street as well as our estimates, with the beat in 1QFY27 being driven by higher sales across markets as well as higher gross margin. While the company revising its FY27 US sales guidance upward, given the strong 1Q performance, was along expected lines, we note that the company’s guidance of yoy growth in FY28 in the US on a reasonably elevated FY27 base is not a part of street’s base case. India outperformance was a clear positive, with overall domestic growth starting to mirror the double-digit growth in the prescription business, and growth in the company’s strong diabetes franchise (insulin-led rather than Sema-led) likely to offset any incremental volatility in the ex-Rx businesses. Lupin’s earnings profile is also increasingly benefiting from its diversification into ex-India, ex-US markets (close to one-fourth of overall sales this quarter, with margins also benefiting from its increasing scale in these markets). While Lupin’s strong medium-term US pipeline reflects its consistently higher R&D outlay vs its frontline peers, key high-value launches are likely to be back-ended (post-FY28). We cut FY27/28E EPS by ~5% on account of higher amortization and ETR guidance (the cut in FY29E is higher given that we had factored in Xywav in our FY29 estimates earlier). Retain ADD and TP of Rs2,500
Broad-based sales beat; EBITDA meaningfully ahead of estimate
US sales ($366mn) were ahead of expectations despite incremental competition in Mirabegron (market share in Tolvaptan increased qoq). India sales were also ahead of our estimate (higher Rx as well as ex-Rx sales). Growth in the core prescription business stood at ~15% in 1Q (volume growth at 6.1%). EBITDA was ~13% ahead of our estimate (no FX benefit; R&D spend was in line; and other expenses included VISUfarma acquisition-related costs). Gross margin was up ~300bps yoy to ~75%. EBITDA margin stood at 29.6% (~220bps ahead), primarily on the back of higher gross margin.
KTAs from the earnings call
1) See FY27 US sales at $1.1-1.2bn; plans to file >15 products including 7 respiratory assets in FY27 (Spiriva Respimat, Breo Ellipta).
2) Expect to launch >50 products in the US over the next 3 years (10 exclusive first-to-files, five biosimilars, and two to three 505(b)(2)s).
3) Ex-US organic revenue growth stood at >20% in 1Q; expects 10-20% growth in emerging and other developed markets over the next 2 years.
4) Targets driving one-third of India sales from novel proprietary products (in-house + in-licensed; 60-70 launches) within 10 years.
5) Expect to launch vial and oral dosage forms of Semaglutide in India in 2HFY27; Semaglutide to be launched in South Africa in FY27.
6) The company expects gross margin to moderate going forward, reflecting the impact of higher raw material costs and potential changes in Tolvaptan realizations, depending on competitive intensity (retains 25% EBITDA margin guidance for FY27).
7) The near-term biosimilar pipeline has the potential to contribute ~$200mn in sales (US + Europe).
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