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Maintains high-single digit YoY growth guidance for US generics (FY25)

* LPC delivered a strong earnings beat in 1QFY25, led by a superior show in key markets (US/India), lower R&D spending and a low tax rate. LPC posted the highest quarterly EBITDA margin in five years.

*  We raise our earnings estimates by 17% each for FY25/FY26, factoring in a) a niche product pipeline for US generics market, b) improved traction in API segment, c) benefits from PLI scheme, d) reduced prices of Pen-G, and e) low ETR. We value LPC at 28x 12M forward earnings to arrive at a TP of INR2,050.

*  LPC is expected to sustain strong earnings growth momentum in FY25/FY26 after a turnaround in FY24. LPC has seen improved traction across its key markets, resulting in better operating leverage. It continues to invest in ANDA pipeline, comprising injectables, inhalation and biosimilars. Accordingly, we estimate a 30% earnings CAGR over FY24-26. The current valuation adequately factors in the earnings upside. Maintain Neutral.

Product mix/operating leverage boost margins

* Revenue grew 21.5% YoY to INR56b. (our est. INR50b). US sales grew 28.3% YoY to INR20.4b (up 25% YoY in CC to USD227m; 37% of sales). DF sales grew 17.5% YoY to INR19.3b (35% of sales). EMEA sales grew 26.2% YoY to INR5b (9% of sales). Growth Market sales grew 26.7% YoY to INR5.2b (9% of sales). API sales grew 7.4% YoY to INR3.6b (7% of sales). ROW sales were stable YoY to INR1.7b (3% of sales).

* Gross margin (GM) expanded 450bp YoY to 68.8% due to a better product mix.

* EBITDA margin expanded 10% YoY to 24.3%, largely due to better GM, aided by reduced employee costs/R&D expenses/other expenses (-100bp/- 170bp/-300bp YoY as a % of sales).

* As a result, EBITDA doubled YoY to INR13.6b (vs. our est. of INR9.7b).

* Adjusting for provision of Glumetza case of INR751m and forex loss of INR454m, adj. PAT jumped 3.1x YoY to INR9.0b (our est: INR5.0b).

Highlights from the management commentary

* LPC expects high-single digit YoY growth in US generics segment for FY25. This guidance excludes Mirabegron (50mg), given the pending litigation outcome.

* FY26 growth prospect is also expected to be robust in US generics given the products like g-tolvaptan and other niche products.

* LPC completed phase III clinical trial for biosimilar Lucentis (Ranibizumab).

* R&D spending will be INR18b for FY25.

* The potential launches for FY25 are Doxycycline, g Pred Forte, Doxorubicin HCL and couple of ophthalmic products.

* LPC continues to address regulatory issues related to g-Dulera.

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