Neutral Lupin Ltd for the Target Rs 2,500 by Motilal Oswal Financial Services Ltd
Execution drives another earnings beat Building long-term growth drivers amid near-term earnings consolidation
* Lupin (LPC) has delivered a better-than-expected financial performance in 1QFY27, with 5%/15% beat on revenue/EBITDA. Compared to the EBITDA beat, the PAT beat was lower because of higher depreciation and tax rate.
* Segment-wise, other developed markets and emerging markets surprised considerably on the revenue front. Domestic formulation (DF) and the US business were marginally better than expectations.
* US business remains on strong footing with stable business from niche opportunities and volume growth in base business. ? Ex-US, organic revenue growth was 20% YoY in 1QFY27.
* LPC’s DF business with 15% YoY growth continued to outperform the industry with IPM YoY growth of 13.5%. LPC sustained leadership in chronic therapies through new launches and strong brand recall of existing products.
* We reduce our earnings estimate by 6% for FY27 to factor in increased depreciation and a higher tax rate. We value LPC at 22x 12-month forward earnings to arrive at a TP of INR2,500.
* FY27 would be the year of consolidation after three years of strong earnings growth. LPC is implementing efforts to build a niche product pipeline in focus markets to improve the growth outlook going forward. This, supported with marketing efforts in select markets, is expected to strengthen overall growth for the company.
* Having said this, earnings is expected to remain stable over FY26-28 due to increased competition in certain products in the near term and some gestation period to offset this impact, and subsequently return to growth path. The valuation provides limited upside from the current levels. Maintain Neutral.
Product mix drives profitability
* 1QFY27 revenue grew 32% YoY to INR82.8b (our est. INR78.9b).
* Gross margin (GM) expanded 310bp YoY to 74.8%.
* EBITDA margin expanded 360bp YoY to 29.8% (est. 27.2%), largely due to better GM.
* As a result, EBITDA grew 50.1% YoY to INR24.6b (our est. INR21.5b).
* Adj. PAT grew 24.4% YoY to INR14.2b (our est.: INR13.6b), lagging EBITDA growth due to higher depreciation, interest expense, and effective tax rate.
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