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Superior US execution drives earnings surprise

Pipeline in inhalation/injectables/specialty products to support growth

• Lupin (LPC) exhibited better-than-expected performance with a beat of 4%/10%/23% on revenue/EBITDA/PAT in 1QFY26. This was driven by a higher-than-expected US revenue, better product mix, and lower R&D spend for the quarter.
• US sales have been on a strong uptrend for the past 14 quarters, driven by improved traction in niche products, including recent additions such as gJynarque (Tolvaptan) and g-Xarelto (Rivaroxaban). LPC has a strong pipeline of products in the inhalation/injectable space to sustain this growth momentum going forward. It is also working on specialty products (Namuscla, Xopenox) for the US market.
• The domestic formulation (DF) segment had a breather in YoY growth this quarter, primarily due to increased competition in one of the in-licensed products. Given its strong anti-diabetes franchise, LPC is gearing up for the launch of semaglutide as part of the first wave of market formation in India.
• LPC is also scaling additional growth drivers in India, including consumer health, diagnostics, and digital offerings for cardiac patients.
• We raise our earnings estimate by 5.5%/2% for FY26/FY27, factoring in: a) superior execution in limited competition products in the US market, b) loss of exclusivity in one of the in-licensed products in the DF market, and c) lower opex. We value LPC at 22x 12M forward earnings to arrive at a TP of INR2,000.
• LPC has achieved 3x/8x EBITDA/PAT over FY23-25. Considering the product pipeline for the US market and chronic focused approach in the Indian market, we estimate a 14%/16% EBITDA/PAT CAGR over FY25-27. Moreover, the valuation leaves limited scope for appreciation from current levels. Reiterate Neutral.

Robust US sales and 290bp margin expansion drive 27% YoY growth in PAT

• LPC’s 1QFY26 revenue grew 11.9% YoY to INR62.7b. (our est. INR60.5b).
• US sales grew 24.3% YoY to INR24b (up 22% YoY in CC to USD282m; 39% of sales). DF sales grew 7.8% YoY to INR20.9b (34% of sales). Other developed market sales grew 17.4% YoY to INR7.7b (13% of sales). Emerging market sales grew 5.2% YoY to INR 6.5b (10% of sales).
• API sales decreased 32.9% YoY to INR2.4b (4% of sales).
• Gross Margin (GM) expanded 290bp YoY to 71.7% due to a better product mix and reduction in raw material costs.
• EBITDA margin expanded 190bp YoY to 26.2% (our est: 24.6%, largely due to a better GM. The benefit was partly offset by higher R&D spend (+150bp YoY as % of sales).
• As a result, EBITDA grew 21% YoY to INR16.4b (vs our est: INR15b).
• Adj. PAT grew 27% YoY INR11.5b (our est: INR9.3b), further supported by a lower tax rate.

Highlights from the management commentary

• LPC guided for strong double-digit YoY revenue growth, with EBITDA margin expected at 24%-25% in FY26.
• The goal dates for Risperdal Consta/Ranibizumab are Sep’25/Jun’26.
• LPC has gained considerable market share for g-Spiriva in the commercial channel and is actively working on the Medicare/Medicaid channels to further drive business from this product.
• LPC expects to launch g-Dalbavancin this year.
• Patient recruitment for Namuscla in the US market is underway, with commercialization targeted by FY29.
• Regarding Spiriva, a couple of companies have filed ANDAs for the US market.
• LPC plans to launch g-Victoza (liraglutide) in Oct’25. Pending approval of gVictoza, the scope of USFDA approval for g-Saxenda has increased, with a goal date set for FY27.

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