Neutral Lupin Ltd For Target Rs.2,150 by Motilal Oswal Financial Services Ltd
India, the US, and controlled costs drive earnings
On track to sustain the growth momentum in the US market
* Lupin (LPC) delivered a better-than-expected performance for the quarter. LPC exhibited growth across focus markets except in emerging markets. New launches in the US/Domestic Formulation (DF) markets as well as increasing penetration in the branded prescription market and controlled opex led to profitable growth for the quarter.
* We raise our earnings estimates by 5%/3%/1% for FY25/FY26/FY27 to factor in: 1) the benefits from the PLI scheme, 2) a robust ANDA pipeline for the US market, and 3) an enhanced reach for prescription, trade generics as well as diagnostic businesses in the India market. We value LPC at 26x 12M forward earnings to arrive at our TP of INR2,150.
* With EBITDA reaching almost 3x over FY23-25E, we expect LPC to deliver 8% EBITDA CAGR over FY25-27, led by niche launches in the US market and superior execution in the DF market. The current valuation adequately captures the earnings upside, and hence we reiterate our Neutral rating.
Superior product mix and better operating leverage drive margins YoY
* LPC’s revenue grew 11% YoY to INR57.7b. (our est. INR57.4b). The US sales grew 12.3% YoY to INR21.2b (up 11% YoY in CC to USD235m; 38% of sales). DF sales rose 11.9% YoY to INR19.3b (34% of sales). EMEA sales grew 20.9% YoY to INR6.2b (11% of sales). API sales increased 4% YoY to INR2.9b (5% of sales). ROW sales rose 1.8% YoY to INR2b (4% of sales). However, EM sales declined 4.7% YoY to INR4.5b (8% of sales).
* Gross margin expanded 340bp YoY to 70.2% due to a better product mix.
* EBITDA margin improved 550bp YoY to 25.2%, primarily led by better GM and supported by reduced other expenses (-210bp YoY as a % of sales).
* As a result, EBITDA grew 42% YoY to INR14.5b (vs our est: INR12.5b).
* Adjusting for the provision related to the ongoing disputes of INR856m and a forex loss of INR100m, adj. PAT grew 55.4% YoY INR9.3b (our est: INR7.6b).
* In 9MFY25, LPC’s revenue/EBITDA/PAT grew 14%/56%/88% YoY to INR169b/ INR40.5b/INR26b.
Highlights from the management commentary
* LPC expects the EBITDA margin to be 23-23.5% for FY25. LPC delivered a 9MFY25 EBITDA margin of 24%.
* LPC expects a double-digit YoY growth in the US business vs. earlier guidance of a single-digit YoY growth for FY25.
* LPC indicated USD1b of US sales for FY26 assuming competition in Mirabegron and Albuterol, while additional business from Tolvaptan (1HFY26) and injectables (2HFY26).
* R&D spending will be INR18b for FY25, implying R&D to be higher for 4QFY25. Complex generics 5 nasal sprays are expected to be filed in 4Q.
* LPC filed Ranibizumab for the EU market.
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