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Lupin's reported earnings were slightly above our estimates on the revenue and margin front, which was driven by strong momentum across major geographies and achieving operating leverage. Lupin reported a top-line of INR 50,386mn (up 4.7% QoQ and 21.5% YoY), driven by strong growth in North America, Emerging markets, and India. Q2FY24 EBITDA at INR 9,231mn (up 7.8% QoQ and 112.6% YoY) and margin at 18.2%, improved due to managing costs and achieving operating leverage. PAT at INR 4,897mn saw a growth of 277% YoY and 8.3% QoQ. The main drivers for the growth will be new product launches in the US especially in the complex portfolio, better-than-market performance in India, and an increase in the operating margin

* India Business: Revenues from the Indian region accounted for over c.36% of total formulation revenue in Q2FY24, grew by 6.8% YoY and 3.2% QoQ to INR 16,915mn, even after the NLEM impact. The diabetes segment which was in de-growth mode, has now started recovering and is back to growth. The management expects to grow by double-digits in the year ahead and the investments made in expanding the field force will increase the productivity and build the growth rate for the company.

* North America: Revenues from the US region, which accounted for 40% of the total formulation revenue grew by 40.4% YoY and 17.4% QoQ to INR 18,666mn. US business delivered continued growth in revenue and margin for the fifth consecutive quarter backed by the strength of the base business, the launch of Tritoprium, gSpriviva, and strong performance in the respiratory products. The respiratory products contributed +45% of the total US revenue. The run rate of +$200mn will be sustainable in the coming quarters and also focus on upscaling the portfolio of complex formulations, inhalation, injectables, and biosimilars.

* Margin Performance: During the quarter, gross margin came at 66.2% (improved by 29bps QoQ and by 751bps YoY), the improvement in the margin was driven by India as well as the US business. Q2FY24 EBITDA at INR 9,231mn (up 7.8% QoQ and 112.6% YoY) and margin at 18.2%, improved due to better product mix, commodity deflation, increased volumes, and realization of saving. The management expects the EBITDA margins of the current quarter (18%) will be sustainable in the H2FY24 and end the year with almost 17% margin.

* Outlook & Valuation: Future growth will be driven by the launch of tiotropium in the US market, India business which is expected to grow by double-digit, the focus on the complex generic segment, and benefiting from the cost optimization measures which will continue to improve the margin. The expected Revenue/ EBITDA/ PAT CAGR for FY23-26E is to be at 13.5%/34.4%/83.1% (low base). We introduce FY26E and value the stock based on FY26E EPS to arrive at a target price of INR 1451 (valued at 25x) and improve our rating to OUTPERFORM.

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