Buy Lupin Ltd for the Target Rs.2,500 By Emkay Global Financial Services Ltd
Clarity emerging around the near-term US+margin trajectory
Lupin delivered yet another quarter of earnings outperformance vs street as well as our estimates, with the beat in 2QFY26 being driven by higher US + EM sales as well as gross margin. US sales, gross margin, and EBITDA margin were again at a multi-quarter high. Consequently, the management raised its fullyear EBITDA margin guidance to 25-26% (vs 24-25% earlier; still conservative, in our view, and likely to be closer to 27%) and expects margin to be broadly stable in FY27 (24-25%; our estimate is at the lower end of the range). The stock price has not reacted to successive earnings beats despite inexpensive valuations (22x FY27E EPS) owing to concerns around the sustainability of earnings currently driven by high-value opportunities. However, we now see increased comfort around the competitive landscape for key products and expect FY27 US sales to also well-exceed USD1bn (our FY27 estimates already factor in incremental competition in gJynarque, gMyrbetriq, and gProAir). In addition to the upbeat management commentary, our continued positive stance also stems from Lupin’s sustained R&D investments in complex generics which will continue to feed into its medium-term US pipeline, the company’s established domestic diabetes franchise potentially benefiting from therapyspecific tailwinds, ex-India + ex-US markets now increasingly becoming a part of the growth equation (revenue share inching towards 25%), and the likely elimination of margin drag from domestic adjacencies. We raise FY26E EPS by 5%, while marginally raising our FY27/28 earnings estimates; retain BUY
US sales again at a multi-quarter high; India sales a tad lower than expectation
US sales (USD315mn) exceeded expectations, driven by higher contribution from gJynarque as well as gMyrbetriq which more than offset the impact of a low single-digit price decline in the base business (including Albuterol). India sales were marginally lower than expectations, with the miss being driven by other business verticals. Growth in the core prescription business stood at 8.8% in 2Q. The strong beat in other markets was primarily driven by LatAm (Brazil - diabetes portfolio) and RoW (South Africa).
KTAs from the earnings call
1) Expects meaningful contribution from biosimilars in the US from FY27 and targets 5 biosimilar launches by FY30 (Pegfilgrastim: partnered; Ranibizumab and Aflibercept: inhouse commercial team). 2) Sees more room for generic penetration in gJynarque (currently at 30%). 3) Expects India formulations to grow 1.2-1.3x the IPM; expects launching Semaglutide in the first wave, in India (no capacity constraint; will also launch in South Africa). 4) Post the VISUfarma acquisition, expects the global specialty business to scale up, to USD150mn in sales in FY27; global ophthalmic sales will scale up, to USD140mn. 5) 70% of the R&D spend directed toward building a complex generic pipeline. 6) Expects double-digit CC growth in EMs and developed markets going forward.
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