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Lupin's reported earnings slightly surpassed our projections, driven by robust performance in major markets and effective operational efficiency. The company posted a top-line of INR 51,974mn, indicating a substantial 20.2% YoY increase and a modest 3.2% QoQ growth, primarily fueled by strong growth in North America, EMEA, and RoW. In Q3FY24, EBITDA reached INR 10,220mn, marking an impressive 98% YoY surge and a noteworthy 10.7% QoQ uptick. The EBITDA margin at 20%, demonstrated improvement attributed to increased sales and optimal utilization of operating leverage. Adj. PAT, at INR 6,131mn, exhibited an outstanding 300% YoY growth and a notable 25.2% QoQ increase. Key growth drivers include upcoming product launches in the US, particularly in the complex portfolio, outperforming the market in India, and an enhancement in operating margins.

* India Business: The India Business segment reported revenues of INR 17,251mn, constituting approximately 36% of the total formulations revenue. This segment exhibited robust double-digit growth, boasting a 1.6 times IPM growth rate. Notably, therapeutic areas such as respiratory, gastrointestinal, and gynecology surpassed market performance. With a strong emphasis on chronic therapies, approximately 62% of the revenue is contributed by this category. The management anticipates the India Business to continue its growth trajectory, targeting a 20-30% expansion above the market growth rate. This growth will be driven by strategic focus on key therapy areas and potential inorganic expansion through mergers and acquisitions.

* North America Business: North America generated revenues of INR 18,885mn, constituting approximately 39.3% of the total formulation sales. This marks the second consecutive quarter where the region achieved USD 200mn+ in revenue, driven by volume-led growth in the base business and contributions from seasonal products. The respiratory portfolio, including Tiotropium, played a significant role in this achievement. The company expresses confidence in maintaining revenues for the region at USD 200mn+ in the coming quarters. This optimism is based on the ongoing ramp-up of Tiotropium and the upcoming launch of new products, including various ophthalmic and complex injectable ranges.

* Margin Performance: The Gross Margin for the quarter stood at 66.8%, showcasing an expansion of 629bps YoY and 58bps QoQ. This improvement was attributed to a more favorable product mix, a reduced share of in-licensed products, and increased volumes. The EBITDA margin, at 20%, demonstrated a notable enhancement of 765 bps YoY and 176 bps QoQ. This positive trend was driven by higher sales and improved operating leverage.

Outlook and Valuation

Future growth is anticipated to be driven by the ramp-up of Tiotropium and the launch of new products in the US market, alongside double-digit expansion in the India business and focus on the complex generic segment. Cost optimization measures are expected to bolster margins. The projected CAGR for FY23-26E stands at 14% for Revenue, 38.9% for EBITDA, and 91% for PAT (low base). We value the stock on FY26E EPS of INR 65.9 to arrive at a target price of INR 1,873 (valued at 28.4x) and maintain our OUTPERFORM rating.

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