Neutral Lupin Ltd for the Target Rs. 2,200 by Motilal Oswal Financial Services Ltd
Niche products and superior execution lead to robust 4Q and FY25 performance
Steady progress, but upside capped
* Lupin (LPC) delivered slightly better-than-expected revenue, EBITDA, and PAT for the quarter (4% beat).
* LPC continues to track well in the US generics segment (40% of 4Q sales), clocking the highest quarterly run-rate of USD245m over the past 24 quarters.
* The strong 47% YoY earnings growth for 4QFY25 was supported by healthy growth in key geographies, a higher share of limited competition products, PLI income, and a lower tax rate.
* The superior product mix has led LPC to achieve a peak gross margin of 70% in 36 quarters.
* Outperformance to the industry in certain therapies, such as diabetes, cardiology, and gastrointestinal in the domestic formulation (DF; 30% of 4Q sales) segment, is offset by subdued performance in the in-licensed portfolio and a weak show in the anti-infectives segment.
* LPC delivered strong execution in other developed markets (up 30% YoY) as well, by expanding its offerings and its reach.
* We raise our earnings estimates by 8%/7% for FY26/FY27, factoring in 1) launches in inhalation/injectables/biosimilars segments in the US/EU and other developed markets, 2) better-than-industry growth aided by rising chronic therapies’ share in the DF segment, and 3) increased R&D spending towards building a complex product pipeline. We value LPC at 25x 12M forward earnings to arrive at our TP of INR2,220.
* While LPC has delivered phenomenal financial performance over the past three years (adj. PAT surged from a low of INR4b in FY23 to INR33b in FY25), we expect 12% earnings CAGR over FY25-27, as new launch benefits would be offset to some extent by higher competition in the base business. We reiterate our Neutral rating.
Broad-based growth and margin expansion lift PAT (up 47% YoY)
* LPC expects the EBITDA margin to be 23-23.5% for FY25. LPC delivered a 9MFY25 EBITDA margin of 24%.
* Lupin's (LPC) 4QFY25 revenue grew 14.2% YoY to INR56.7b (our est. INR54.7b). The US sales rose 19% YoY to INR22.6b (up 17% YoY in CC to USD245m; 41% of sales). Domestic formulation (DF) sales grew 6.9% YoY to INR17.1b (31% of sales). Other developed market sales increased 30.9% YoY to INR6.9b (12% of sales). Emerging market sales rose 10.4% YoY to INR 6.7b (12% of sales), while API sales dipped 10.3% YoY to INR2.3b (4% of sales).
* Gross margin (GM) expanded 200bp YoY to 70.2% due to better product mix.
* EBITDA margin expanded 270bp YoY to 22.8%, largely fueled by better GM and aided by reduced other expenses (-110bp YoY as a % of sales).
* As a result, EBITDA grew 29.6% YoY to INR12.9b (vs. our est: INR12.4b).
* Adj. PAT grew 47% YoY INR7.5b (vs. our est: INR7.45b).
* For FY25, its revenue/EBITDA/PAT grew 14%/47%/73% YoY to INR225b/ INR52.7b/INR32.7b.
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 projected USD1b in US sales for FY26E, assuming competition for Mirabegron and Albuterol, while incremental revenue is likely from Tolvaptan in 1HFY26 and injectables in 2HFY26.
* R&D spending will be INR18b for FY25, implying R&D to be higher for 4QFY25. Five complex generic nasal sprays are expected to be filed in 4Q.
* LPC filed Ranibizumab for the EU market.
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