August Lupin (LUPIN) - ICICI Direct

August 04, 2015

ICICI Securities Ltd | Retail Equity Research

Result Update

Gavis acquisition optically bold move… • Q1FY16 revenues de-grew 5.7% YoY to | 3150 crore (I-direct

estimate: | 3248 crore) mainly due to 25.8% YoY decline in US sales (38% of net sales) on the back of a slowdown in product approvals and increased competition. Domestic revenues (28% of net sales) were up 16.2% YoY to | 885 crore

• EBITDA margins declined 744 bps to 25.9% (I-direct estimate: 26.7%) mainly on account of a higher base. EBITDA de-grew 26.7% YoY to | 816.6 crore against I-direct estimate of | 867.6 crore

• Net profit posted de-growth of 16% YoY to | 525 crore (I-direct estimate: | 561 crore) owing to a below par operating performance

US business main growth engine Lupin’s US business (~44% of total turnover) is witnessing a shift from branded to generics with a slowdown in the branded space and emergence of generics. Post the acquisition of US based Gavis, the costliest acquisition so far after a long wait, the company will own one of the strongest ANDA pipeline comprising 306 filed ANDAs, 101 launches and 164 pending approvals, including ~43 FTFs. This acquisition will strengthen its position in dermatology, controlled substance products and other high value niche generics segments besides its maiden foray into US institutional business. We expect US sales to grow at a CAGR of 20.5% in FY15-17E to | 8212.1 crore. Indian formulations growth steady Lupin is ranked sixth in domestic formulations with a market share of 3.40%. The acute-chronic ratio for the company stands at 52:48. In terms of MR productivity, at | 46 lakh per MR it has one of the best MR productivity among large cap peers. Recent tie-ups with Eli Lilly for anti-diabetics and with MSD for pneumonia vaccines are some of the steps to bolster the domestic franchise. We expect sales from India to grow at a CAGR of 18% in FY15-17E to | 4116.7 crore. Core strength in geographical diversification, strong financials Lupin is bearing the fruits of geographical diversification for broad based growth. It has established a significant presence in the US by 1) focusing on limited competition/FTF opportunities, 2) concentration on niche therapies such as oral contraceptives, dermatology, ophthalmology, respiratory, etc, and 3) acquiring small but profitable brands at the right price. In domestic formulations, it is improving its presence in lucrative chronic therapies. It is slowly but surely establishing itself in other geographies such as Japan and Australia. Higher growth on a fairly consistent basis, a strong balance sheet with debt-free status and high return ratios are some of the differentiators for Lupin. Gavis acquisition a tad costly but will strengthen US franchisee At ~9x CY14 sales, the Gavis acquisition is by no means cheap. However, looking at the strong track record of the company (and promoter as well) along with the strong future pipeline and robust financials, the price seems justified. The combined pipeline will comprise 43 FTFs and enable Lupin’s foray into new areas. Lupin’s balance sheet is strong enough to assume additional debt burden to finance this acquisition. The US remains the main growth driver, going ahead, and the management remains optimistic about the improvement in the approvals scenario from H2FY16 in the backdrop of USFDA’s own approval targets by September FY17. Our new target price is | 1885, based on 25x FY17E EPS of | 75.4.

Rating matrix Rating : BuyTarget : | 1885Target Period : 12-15 monthsPotential Upside : 15%

What’s Changed? Target Changed from | 1899 to | 1885EPS FY16E Changed from | 61.1 to | 56.8

EPS FY17E Changed from | 75.9 to | 75.4Rating Unchanged

Quarterly Performance

Q1FY16 Q1FY15 YoY (%) Q4FY15 QoQ (%)Revenue 3,150.2 3,340.8 -5.7 3,078.2 2.3EBITDA 816.6 1,114.8 -26.7 789.4 3.5EBITDA (%) 25.9 33.4 -744 bps 25.6 28 bpsNet Profit 525.0 624.7 -16.0 547.0 -4.0

Key Financials (| Crore) FY14 FY15 FY16E FY17ERevenues 11286.6 12770.0 14321.0 17914.9EBITDA 2899.4 3619.6 3959.6 5295.1Net Profit 1836.4 2403.2 2497.6 3380.7EPS (|) 41.0 53.6 55.7 75.4

Valuation summary

FY14 FY15 FY16E FY17EPE (x) 40.2 30.7 29.5 21.8Target PE (x) 46.0 35.2 33.8 25.0EV to EBITDA (x) 25.3 19.9 19.4 14.2Price to book (x) 10.6 8.3 6.8 5.4RoNW (%) 26.5 27.1 22.9 24.7RoCE (%) 35.4 34.8 24.2 29.6

Stock data ParticularMarket Capitalisation Debt (FY15)Cash (FY15)EV52 week H/L 2112/1118Equity capital | 89.7 croreFace value (|) | 2

Amount| 73807 crore

| 73862 crore

| 537 crore| 481 crore

Price performance (%)

1M 3M 6M 1YLupin -13.7 -8.2 2.6 38.6Dr Reddy's 9.9 18.2 21.0 38.6Sun Pharma -6.9 -13.3 -11.3 3.0

Research Analyst

Siddhant Khandekar [email protected] Mitesh Shah [email protected] Nandan Kamat [email protected]

Lupin (LUPIN) | 1643


Variance analysis (| crore) Q1FY16 Q1FY16E Q1FY15 Q4FY15 YoY (%) QoQ (%) CommentsRevenue 3,150.2 3,248.3 3,340.8 3,078.2 -5.7 2.3 Revenue growth was impacted due to decline in the US sales owing to

slowdown in launches and price erosion in existing portfolioRaw Material Expenses 983.4 1,008.1 1,107.4 956.4 -11.2 2.8 Gross margins increased ~190 bps YoY to 69% mainly due to higher Intellectual

Property incomeEmployee Expenses 486.0 444.5 410.4 482.2 18.4 0.8

Other Expenditure 864.2 928.1 708.4 850.2 22.0 1.6Operating Profit (EBITDA) 816.6 867.6 1,114.8 789.4 -26.7 3.5EBITDA (%) 25.9 26.7 33.4 25.6 -744 bps 28 bps Margins were impacted mainly due to higher employee cost and other

expenditureInterest 2.4 1.8 2.6 2.5 -6.2 -2.0Depreciation 100.7 113.8 108.6 107.2 -7.3 -6.0Other Income 75.6 57.6 28.9 17.2 161.4 339.4 Registered forex gain of ~| 44 crore in Q1FY16PBT 789.1 809.6 1,032.5 697.0 -23.6 13.2Tax 264.4 242.9 402.9 136.2 -34.4 94.1PAT before MI 524.7 566.7 629.6 560.7 -16.7 -6.4Minority Interest -0.3 5.7 4.8 13.7 -106.0 -102.1Net Profit 525.0 561.1 624.7 547.0 -16.0 -4.0 Net profit saw a decline mainly due to lower EBITDA, which was partially offset

by higher other income.Key MetricsIndia 885.1 776.7 761.5 663.7 16.2 33.4 Domestic formulations beat our estimates due to better than expected growth in

existing products and new product launches.Japan 323.1 300.5 341.5 294.3 -5.4 9.8 In constant currency, Japan's total sales grew 6%. The I-direct miss was mainly

due to slower than expected growth in Kyowa.US 1,190.6 1,411.0 1,605.5 1,377.9 -25.8 -13.6 Decline in growth on account of enhanced competition in existing products and

slowdown in new product approvals. The I-direct miss was mainly due to higher-than-expected price erosion in the existing portfolio.

Europe 85.6 86.3 69.0 89.1 24.1 -3.9South Africa 81.6 121.7 86.9 122.2 -6.1 -33.2 Miss vis-à-vis estimates mainly due to lower than expected constant currency

growth. Constant currency growth was ~2% in Q1FY16.ROW markets 182.6 197.0 127.1 199.3 43.7 -8.4API 325.7 307.1 292.5 307.5 11.4 5.9

Source: Company, ICICIdirect.com Research Source: Company, ICICIdirect.com Research

Change in estimates

(| Crore) Old New % Change Old New % ChangeRevenue 15,128.4 14,321.0 -5.3 18,051.3 17,914.9 -0.8 Change in revenue assumption due to slower than expected product approvals in the

US.EBITDA 4,236.0 3,959.6 -6.5 5,234.9 5,295.1 1.1EBITDA Margin (%) 28.0 27.6 -35 bps 29.0 29.6 56 bpsPAT 2,733.7 2,497.6 -8.6 3,482.0 3,380.7 -2.9 Increased financial cost and depreciation assumptions due to acquisation of GAVIS in

the US.EPS (|) 61.0 55.7 -8.6 77.7 75.4 -2.9

FY16E FY17E

Source: Company, ICICIdirect.com Research Assumptions

Current Comments(| crore) FY14 FY15 FY16E FY17E FY16E FY17EIndia 2,479.6 2,968.0 3,488.8 4,116.7 3,502.2 4,132.6Japan 1,295.4 1,323.9 1,403.7 1,572.2 1,456.3 1,631.0US 4,887.1 5,659.3 5,990.9 8,212.1 6,577.1 7,892.5 Trimmed US sales due to slower than expected US product approvals.

Europe 293.5 326.2 381.4 438.6 375.1 431.4South Africa 380.0 421.8 483.5 580.2 506.2 607.4ROW markets 633.3 706.4 1,041.3 1,349.6 1,062.1 1,375.6API 1,117.8 1,194.1 1,290.4 1,380.7 1,277.7 1,367.1

Earlier

Source: Company, ICICIdirect.com Research


Company Analysis From a global leader in anti-tuberculosis (TB) and other infectious diseases to one of the fastest growing prescription companies in the US, Lupin has come a long way to emerge as a leading Indian generic exporter. Established in 1968, the company adapted well as per the changed industry dynamics like other peers such as Sun, Dr Reddy’s, Ranbaxy and Cipla. During this journey, it changed focus in therapies - from acute to chronic and also geographies, from domestic driven to export oriented. It received USFDA approvals for two facilities- Ankaleshwar and Mandideep way back in 1989. Besides this, the company has been fairly active on the global M&A front. It has acquired companies in Japan (significant acquisitions), Australia, Philippines and South Africa. Similarly, the company also acquired small ticket but lucrative brands in the US (Suprax, Antara, Locoid lotion and Alinia). Its latest acquisition, however, has been a complex injectable technology based company (Nanomi) in the Netherlands. Infrastructure - 11 manufacturing facilities including two in Japan – seven formulations (three USFDA approved) and four APIs (two USFDA approved).

Exhibit 1: Return ratios to improve further

29.2 32.5 29.825.3

14.223.4

31.825.425.4

22.5 24.3

53.2

39.4

22.2 22.127.2

27.4 31.1

72.8

54.5

0

1020

3040

50

6070

80

FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E

(%)

RoNW RoCE


Exhibit 2: R&D spend likely to remain at elevated level

154.6 231.8357

483.4 522.8709.8

9291099

1408

1765

5.76.1

7.5

8.5

7.4 7.5

8.4 8.7

10.010.0

0

300

600

900

1200

1500

1800


5

6

7

8

9

10

11

12

R & D cost (| crore) R & D cost % revenues


Exhibit 3: Manufacturing facilities

Location Type Segment Regulatory ApprovalsAurangabad (India) Tablets, Capsules, Liquids Formulations USFDA, TGA Australia, WHO GMP, MCC SA , TGA AustraliaAnkaleshwar (India) Intermediates and APIs APIs UKMHRA, WHO GMP, ANVISA Brazil, EDQM, KFDAMandideep (India) APIs- CVS and Ciphalosporins, Formulations Formulations / APIs USFDA, UKMHRA,WHO GMP, TGA AuatraliaTarapur (India) APIs APIs USFDA, UKMHRA, WHO GMPGoa (India) Solid orals Formulations USFDA, UKMHRA, WHO GMPJammu (India) Formulations Formulations WHO GMP, ANVISA BrazilVadodara (India) Intermediates and APIs APIs WHO GMPIndore (India) APIs and Formulations Formulations / APIs USFDA, UKMHRA,TGA AuatraliaNagpur (India) Formulations Formulations waiting for approvalsKyowa (Japan) Orals Formulations PMDAI' rom (Japan) Injectables Formulations PMDA


The current financial health of the company is the culmination of prudent business decisions in the past. Over the last 10 years, revenues, EBITDA and PAT have improved by 7.5x, 10x and 9.5x, respectively. Considering more recent numbers, in FY10-15, the revenue, EBITDA and PAT have grown at a CAGR of ~22%, ~30% and ~29% to | 12770 crore, | 3619.6 crore and | 2404 crore, respectively. Similarly, balance sheet ratios have improved drastically. While the D/E ratio has come down to 0.1x, the RoCE has improved from 22% to 33%. Similarly, during the same period, the R&D spend as a percentage of sales has gone up from 8.2% to 8.7%.


Going ahead, in the near term, we expect revenues, EBITDA and PAT to grow at a CAGR of 18.4%, 20.9% and 18.6%, respectively, in FY15-17E. However, from a long term perspective, we believe the company is well poised to grow at a healthy rate given the strong US pipeline, vast experience and good understanding of the US market, continued traction in Indian branded formulations with higher chronic focus and improvement in the Japanese market, which is perhaps the only geography where there is a scope for improvement. On the R&D front, we see the composition spend tilting towards NDDS, NCEs, biosimilars from the current ANDA/NDA albeit gradually to prepare for the scenario beyond 2020. Exhibit 4: Revenues to grow at CAGR of 18.4% in FY15-17E

2706.43775.9

4741.85706.8

7082.9

9461.611086.6

12599.7

17650.2

14080.0

-2100

900

3900

6900

9900

12900

15900

18900


(| c

rore

)


Exhibit 5: New product launches to drive growth in US market

2079.8 2433.6

3769.5

4887.15659.3 5990.9

8212.1

0

2000

4000

6000

8000

10000

FY11 FY12 FY13 FY14 FY15 FY16E FY17E

US (| crore)


Exhibit 6: Indian formulation sales to grow at CAGR of 18% in FY15-17E

1573.51925.3

2364.3 2479.6

2968.0

3488.8

4116.7

0

500

1000

1500

2000

2500

3000

3500

4000

4500


India (| crore)


Revenues to grow at a CAGR of 18.4% in FY15-17E to

| 17650.2 crore driven by 20.5% growth in the US

business, 38.2% growth in RoW markets, 17.3% growth in

South Africa and 17.8% growth in Indian formulations

business

Lupin is the fifth largest generics player in the US in terms

of prescriptions. It owns a healthy product pipeline

(including Gavis) in the US (~306 ANDAs filed, 164

pending approvals and 101 launches), which includes

some limited competition products and ~43 FTFs

opportunities. It is planning to launch more than 150 (100

owns and 50 from GAVIS) products in the US market in

the next four or five years. Acquisition of Gavis will also

strengthen its position in dermatology, controlled

substance products and other high value niche generics

segments besides its maiden foray into US institutional

business. Lupin is one of the few generic companies that

has a presence in the branded business. Currently, it is

marketing four branded products in the US market,

including two that were in-licensed in the last 12 months.

With a strong product pipeline in both the generic and

branded space, we expect sales from the US market to

grow at a CAGR of 20.5% in FY15-17E to | 8212.1 crore

Lupin is ranked seventh in domestic formulations with a

market share of 3.4%. The company is adding more drugs

in chronic therapies, which would drive growth in the

domestic market. We expect sales from India to grow at a

CAGR of 18% in FY15-17E to | 4116.7 crore


Exhibit 7: Japanese market still witnessing pressure on CRAMS, currency front

621.2

860.8

1304 1295.4 1323.9 1403.71572.2

0

500

1000

1500

2000


Japan (| crore)


Exhibit 8: EBITDA to grow at CAGR of 20.9% in FY15-17E

436739 978 1191

19592270

3960

5295

2899

3620

16.1

30.0

19.620.6

20.9

27.7

24.026.2

28.7 28.1

0

1000

2000

3000

4000

5000

6000


(| c

rore

)

15

17

19

21

23

25

27

29

31

(%)

EBITDA EBITDA Margins (%)


Exhibit 9: Net profit to grow at CAGR of 18.6% in FY15-17E

408.3 501.5681.6

862.6

1382.1 1314.1

1836.4

2403.2 2497.6

3380.7

15.1

13.314.4

15.1

19.5

13.9

16.6

19.1 19.2

17.7

0

500

1000

1500

2000

2500

3000

3500

4000


5

7

9

11

13

15

17

19

Net Profit Net Profit Margins (%)


The Japanese acquisitions i.e. Kyowa and I’rom are yet to

achieve expected critical mass both in terms of

scalability and profitability. While Kyowa profitability is

expected to improve on the back of back-ended

integration by sourcing of APIs from Goa, the I’rom

business remains challenging due to the lumpy nature of

the CRAMS business. Hence, we expect sales from

Japan to grow marginally at a CAGR 9% in FY15-17E to |

1572.2 crore


Exhibit 10: Trends in quarterly financial performance (| crore) Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 YoY (%) QoQ (%)

US 802.4 781.8 1039 1146.3 1006.9 1034.9 1356.7 1467.5 1605.5 1271.6 1404.3 1377.9 1190.6 -25.8 -13.6

Europe 47.3 62.6 59.8 66.0 92.5 74.1 66.1 81.9 69.0 87.6 80.5 89.1 85.6 24.1 -3.9

Japan 332.9 330.1 365.8 275.2 292.3 309.3 372.0 321.8 341.5 345.9 342.2 294.3 323.1 -5.4 9.8

India 621.2 606.4 570.8 565.9 589.4 663.5 650.4 576.3 761.5 799.0 743.8 663.7 885.1 16.2 33.4

South Africa 66.3 81 83.1 90.6 74.6 100.4 98.3 106.7 86.9 105.7 107.0 122.2 81.6 -6.1 -33.2

RoW 117.4 138.2 112.1 149.8 122.1 163.1 142.2 205.9 127.1 188.7 191.3 199.3 182.6 43.7 -8.4

API 231.7 239.2 235.3 243.6 242.9 286.2 297.3 291.4 292.5 318.3 275.8 307.5 325.7 11.4 5.9

Net Sales 2219.2 2239.3 2465.9 2537.4 2420.7 2631.5 2983.0 3051.6 3284.0 3116.8 3144.9 3054.0 3074.3 -6.4 0.7

OOI 34.6 61.4 35.2 48.5 55.5 36.4 39.0 69.0 56.9 56.6 32.7 24.1 75.9 33.5 214.8

Revenues 2253.7 2300.7 2501.1 2585.8 2476.2 2667.9 3022.0 3120.5 3340.8 3173.4 3177.6 3078.2 3150.2 -5.7 2.3

RM Cost 818.7 889.8 935.7 903.9 874.8 841.3 1120.9 980.4 1107.4 1069.8 1023.6 956.4 983.4 -11.2 2.8

% of Revenue 36.3 38.7 37.4 35.0 35.3 31.5 37.1 31.4 33.1 33.7 32.2 31.1 31.2

Gross Profit 1435.0 1410.9 1565.4 1682.0 1601.4 1826.6 1901.1 2140.1 2233.5 2103.6 2154.1 2121.8 2166.8 -3.0 2.1

GPM (%) 63.7 61.3 62.6 65.0 64.7 68.5 62.9 68.6 66.9 66.3 67.8 68.9 68.8 193 -15

Employee Cost 305.0 300.0 316.5 336.1 328.1 368.2 378.7 389.6 410.4 438.9 415.9 482.2 486.0 18.4 0.8

% of Revenue 13.5 13.0 12.7 13.0 13.3 13.8 12.5 12.5 12.3 13.8 13.1 15.7 15.4 314.4 -23.7

Other expenditure 672.5 594.9 644.0 687.2 683.8 798.8 749.0 873.6 708.4 832.2 855.3 850.2 864.2 22.0 1.6

% of Revenue 29.8 25.9 25.7 26.6 27.6 29.9 24.8 28.0 21.2 26.2 26.9 27.6 27.4

Total Expenditure 1796.1 1784.8 1896.1 1927.1 1886.7 2008.3 2248.7 2243.6 2226.1 2340.9 2294.7 2288.8 2333.6 4.8 2.0

% of Revenue 79.7 77.6 75.8 74.5 76.2 75.3 74.4 71.9 66.6 73.8 72.2 74.4 74.1 744.5 -27.7

EBITDA 457.6 515.9 605.0 658.7 589.5 659.6 773.3 876.9 1114.8 832.5 882.9 789.4 816.6 -26.7 3.4

EBITDA Margin (%) 20.3 22.4 24.2 25.5 23.8 24.7 25.6 28.1 33.4 26.2 27.8 25.6 25.9 -744.5 27.7

Other income 23.6 4.3 26.5 6.2 100.9 81.4 32.4 5.2 28.9 110.2 83.4 17.2 75.6 161.5 339.5

Interest 10.1 10.1 7.7 13.3 5.4 4.9 4.2 12.2 2.6 2.1 2.7 2.5 2.4 -6.6 -2.4

Depreciation 65.4 69.0 68.8 129.0 62.4 60.6 63.7 74.3 108.6 108.7 110.3 107.2 100.7 -7.3 -6.0

PBT 405.8 441.2 555.0 522.7 622.6 675.5 737.9 795.7 1032.5 832.0 853.4 697.0 789.1 -23.6 13.2

Tax 120.8 143.8 211.6 108.0 217.2 258.2 254.2 232.7 402.9 192.6 238.7 136.2 264.4 -34.4 94.1

Tax rate (%) 29.8 32.6 38.1 20.7 34.9 38.2 34.4 29.2 39.0 23.1 28.0 19.5 33.5

PAT 285.0 297.4 343.4 414.7 405.5 417.3 483.7 563.0 629.6 639.4 614.7 560.7 524.7 -16.7 -6.4

PAT Margin (%) 12.6 12.9 13.7 16.0 16.4 15.6 16.0 18.0 18.8 20.1 19.3 18.2 16.7 -218.9 -156.0

Minority Interest 4.6 6.9 8.2 6.6 4.4 11.1 7.6 10.0 4.8 9.4 13.3 13.7 -0.3 -106.2 -102.2

PAT After MI 280.4 290.5 335.2 408.1 401.1 406.2 476.1 553.0 624.7 630.0 601.5 547.0 525.0 -16.0 -4.0


Lupin - SWOT Analysis Strengths - Prudent geographical mix covering high opportunity emerging markets as well as developed markets. Formidable US presence with highest rank among Indian peers in the US generic prescriptions space. One of the best working capital management in the industry with strong return ratios and ever improving margins. Weakness - The Japanese market still remains a low margin business. Opportunities - In the US generics space, a lot of opportunities are panning out in the oral contraceptives and respiratory space. Threats - Increased USFDA scrutiny across the globe regarding cGMP issues and consolidation in the US pharmacy space. Gavis like costly acquisitions can stretch the balance sheet further if the product pipeline fails to deliver the expected payback.


Gavis Acquisition

Lupin has initiated the acquisition US based Gavis Pharmaceuticals and Novel laboratories for US$880 million. Gavis has a robust product pipeline of 130 ANDAs including 65 ANDAs filed and more than 66 under development. The company has a presence in controlled substances (20 filed), dermatology (>20 filed), gastro-intestinal (market leader), nasal sprays, DPI and MDI. It has posted sales of US$96 million in CY14 with EBITDA margins of 36%. Lupin expects sales of Gavis to increase three fold in the next three years. Key Highlights:

• Transaction is expected to close by Q3FY16. • The company expects this deal to be accretive immediately to

first full year of earnings • Gavis’ facility would become Lupin’s first manufacturing facility in

the US to cater to the government channel. Also, existing products of Lupin can be supplied through government channel

• The company has ~25 USFDA product approvals and expects 15-20 approvals every year. The company plans to file more than 20 products with USFDA every year. With Gavis, Lupin expects to file 45-50 products per annum

• It has a workforce of 100 for R&D and 150 others for marketing and other administrative work

• R&D as percentage of sales for Gavis is 21% and is expected to remain in the same range

• Gavis’ facility was last inspected by USFDA in January 2015, with no observations

• In the course of the acquisition, very few products of the companies are expected to overlap

• Gavis has filed 60 ANDAs in the last two years. It outsources APIs from multiple players

Exhibit 11: Gavis revenue & EBITDA margins

6478

96

29.7

33.336.5

0

20

40

60

80

100

120

CY12 CY13 CY14

20.0

25.0

30.0

35.0

40.0

45.0

50.0

Revenue (US$ million) EBITDA Margins


Exhibit 12: Pending ANDAs

183164 159

9170 68

0

50

100

150

200

Aurobindo Lupin +Gavis

Sun CadilaHealthcare

Glenmark DRL

No. of ANDAs filed


Exhibit 13: Combined USFDA filings

Solid Oral/Liquids

62%

Derma13%

Controlled Substances

11%

OC11%

Opthal3%

164 Filings


Exhibit 14: Combined products under development for the US

Solid Orals/Liquids

48%

Derma20%

Injectables13%

Controlled Substances

8%

Opthal5%

Nasal 4%

MDI2%

251 products



Conference call highlights

• Lupin acquired Gavis Pharma for US$880 million, which recorded sales of US$96 million in CY14 with the EBITDA margin of 36%. Lupin expects to integrate Gavis by Q3FY16.

• Post this acquisition, its cumulative ANDAs will stand at ~306 of which 164 are pending ANDAs including 43 FTFs. In Q1FY16, Lupin filed 5 ANDAs and received 6 approvals.

• During the quarter Lupin launched gNamenda (CVS) and has a market share of 15%.

• Lupin’s Goa facility was inspected by USFDA in Q1FY16. The facility received nine observations pertaining to GMP issues. Lupin has responded to the observations and does not expect the supplies to halt from the facility.

• The company has registered | 33 crore forex gain above EBITDA level and | 44 crore below EBITDA level.

Future guidance:

• The company gave a guidance of 28-30% EBITDA margins for FY16. It also expects to miss its guidance of 10-15% in FY16 due to slow growth in the US.

• However, it expects more than 20% growth in revenues in FY17. • The company does not expect its guidance of US$4 billion of

organic revenue to be achieved by CY18 • It is planning an exclusive launch of gGlumexa (diabetes) in

Q4FY16 • The company has launched Metoprolol (CVS) post receiving

USFDA observations at the Pithampur facility • The company expects gNexium (Gastro), gwelchol (CVS) and

gLunesta (CNS) to receive approval in the US in Q4FY16


Valuation At ~9x CY14 sales the Gavis acquisition is by no means cheap. However, looking at the strong track record of the company (and promoter as well) along with the strong future pipeline and robust financials, the price seems justified. The combined pipeline will comprise of 43 FTFs and will enable Lupin’s foray into new areas. Lupin’s balance sheet is strong enough to assume additional debt burden to finance this acquisition. The US remains the main growth driver, going ahead, and the management remains optimistic about the improvement in the approvals scenario from H2FY16 in the backdrop of the USFDA’s own approval targets by September FY17. Our new target price is | 1885, based on 25x FY17E EPS of | 75.4. Exhibit 15: One year forward PE

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Price 21.2x 18.2x 17.3x 13.4x 11.4x [


Exhibit 16: One year forward PE of company vs. CNX Pharma

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Exhibit 17: Valuation

Revenues Growth EPS Growth P/E EV/EBITDA RoNW RoCE(| crore) (%) (|) (%) (x) (X) (%) (%)

FY14 11287 17 41.0 40 41.0 -0.1 26.5 35.4FY15 12770 13 53.6 31 31.3 -0.4 27.1 34.8FY16E 14321 12 55.7 4 30.1 0.8 22.9 24.2FY17E 17915 25 75.4 35 22.3 0.2 24.7 29.6



Company snapshot

Target Price:| 1885

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Source: Bloomberg, Company, ICICIdirect.com Research Key events Date EventMay-09 USFDA issues warning letter to Lupin’s formulation facility at Mandideep

Jun-09 Acquires worldwide rights for the intra-nasal steroid product AllerNaze nasal spray from Collgium Pharmaceutical

Sep-09 Acquires US rights for Antara (Fenofibrate Capsules 43 mg and 130 mg) from Oscient Pharma for US$38.6 million

Jan-10 Receives communication from the USFDA on the satisfactory resolution of the warning letter issued

Jun-11 Enters into strategic collaboration to promote and distribute Lilly’s Human insulin products in Indian and Nepal markets

Sep-11 Receives USFDA approval for its first oral contraceptive drug norethindrone tablets

Nov-11 Japanese subsidiary Kyowa acquires specialty injectables company I’rom Pharmaceutical

Nov-12 Launches Fenofibrate 48 mg and 145 mg strengths (generic Tricor) in the US

Aug-13 Signs an agreement with Romark Laboratories, which provides exclusive rights to Lupin to promote, distribute and market Alinia (nitazoxanide) oral suspension brand in the US market

Sep-13 Signs agreement with US based Onset Dermatologics to market Locoid lotion to paediatricians in the US market

Feb-14 Acquires Dutch firm Nanomi B.V. for an undisclosed amount, foraying into the technology intensive complex injectables space.

Mar-14 Acquires Mexico-based ophthalmic drugs maker Laboratories Grin

May-15 Lupin acquired Brazil's Medquimica Industria Farmaceutica SA

Jul-15 Lupin's Goa facility recieves 9 Form 483 observations

Jul-15 Lupin acquires Gavis Pharmaceuticals for US$ 880 million in the US

Jul-15 Lupin acquires speciality product portfolio from Temmler Pharma in Germany Source: Company, ICICIdirect.com Research Top 10 Shareholders Shareholding Pattern Rank Name Latest Filing Date % O/S Position (m) n Change (m)1 Zyma Laboratories, Ltd. 30-Jun-15 12.22 55.0 0.02 Rahas Investments Pvt. Ltd. 30-Jun-15 10.16 45.7 0.03 Visiomed Investments Pvt. Ltd. 30-Jun-15 9.67 43.5 0.04 Lupin Marketing Pvt. Ltd. 30-Jun-15 8.98 40.4 0.05 Lupin Investments Pvt. Ltd. 30-Jun-15 3.42 15.4 0.06 Genesis Investment Management, LLP 30-Jun-15 2.66 12.0 -0.17 First State Investment Management (UK) Limited 30-Jun-15 1.60 7.2 0.08 ICICI Prudential Life Insurance Company Ltd. 31-Mar-15 1.57 7.1 -0.99 Jhunjhunwala (Rakesh Radheshyam) 30-Jun-15 1.45 6.5 -0.610 The Vanguard Group, Inc. 30-Jun-15 1.32 6.0 0.1

(in %) Jun-14 Sep-14 Dec-14 Mar-15 Jun-15Promoter 46.7 46.7 46.7 46.6 46.6FII 31.7 31.8 31.8 34.7 36.8DII 11.0 11.0 10.7 8.7 6.8Others 10.6 10.6 10.8 10.0 9.8

Source: Reuters, ICICIdirect.com Research Recent Activity

Investor name Value Shares Investor name Value ShaGIC Private Limited 166.51m 5.61m Norges Bank Investment Management (NBIM) -63.40m -2.80BlackRock Institutional Trust Company, N.A. 153.87m 5.19m Aberdeen Asset Management (Asia) Ltd. -44.05m -1.49Lyxor Asset Management 38.32m 1.29m Fidelity Management & Research Company -43.65m -1.47Nordea Funds Oy 33.35m 1.03m IDFC Asset Management Company Private Limited -29.70m -1.03Schroder Investment Management (Hong Kong) Ltd. 24.86m 0.77m ICICI Prudential Life Insurance Company Ltd. -29.09m -0.90

Buys Sells


.

Financial summary

Profit and loss statement | Crore (Year-end March) FY14 FY15 FY16E FY17ETotal Operating Income 11,286.6 12,770.0 14,549.0 17,914.9Growth (%) 17.1 13.1 13.9 23.1Raw Material Expenses 3,817.4 4,157.0 4,577.0 5,559.8Employee Expenses 1,464.7 1,747.3 2,170.6 2,647.5Other expenditure 3,105.2 3,246.0 3,727.0 4,412.5Total Operating Expenditure 8,387.2 9,150.4 10,474.6 12,619.9EBITDA 2,899.4 3,619.6 4,074.3 5,295.1Growth (%) 27.7 24.8 12.6 30.0Depreciation 261.0 434.7 469.9 534.5Interest 26.7 9.8 71.4 52.0Other Income 219.9 239.8 176.7 158.9PBT 2,831.7 3,414.8 3,709.7 4,867.5EO 0.0 0.0 0.0 0.0Total Tax 962.2 970.4 1,140.6 1,460.2PAT before MI 1,869.5 2,444.4 2,569.2 3,407.2Minority Interest 33.1 41.2 20.2 26.7Adjusted PAT 1,836.4 2,403.2 2,549.0 3,380.5Gwoth (%) 39.7 30.9 6.1 32.6EPS (Adjusted) 41.0 53.6 56.8 75.4


Cash flow statement | Crore (Year-end March) FY14 FY15 FY16E FY17EProfit/(Loss) after taxation 1836.4 2403.2 2497.6 3380.7Depreciation 303.9 434.7 447.5 534.5Other operating Activities 315.7 -57.5 51.2 52.0(inc)/dec in Current Assets -525.6 -408.0 -1054.7 -1626.0Inc/ (dec) in Current Liabilities 73.5 360.6 237.7 642.1CF from Operating Activities 2003.9 2733.1 2179.2 2983.1Purchase of Fixed Assets -613.9 -1497.0 -6432.0 -650.0(Inc)/Dec in Investments -70.0 -1448.1 1200.0 0.0(Inc)/Dec in Minority interest 0.0 0.0 103.2 122.3Other Investing Activities 16.5 72.6 13.7 -7.2CF from Investing Activities -667.4 -2872.5 -5115.1 -534.9Inc / (Dec) in Loan Funds -529.8 -70.0 3141.5 -1600.0Inc / (Dec) in Equity Capital 23.9 41.3 0.0 0.0Dividend and dividend tax -323 -157 -475 -575Other Financing Activities -27.8 -10.9 -51.2 -52.0CF from Financing Activities -857.1 -196.9 2615.8 -2226.6Net Cash Flow 479 -336 -320 222Opening Cash 318 818 481 161Closing Cash 797.5 481.4 161.3 382.9


Balance sheet | Crore (Year-end March) FY14 FY15 FY16E FY17EEquity Capital 89.7 89.9 89.9 89.9Reserve and Surplus 6,841.9 8,784.2 10,807.2 13,613.2Total Shareholders funds 6,931.6 8,874.1 10,897.1 13,703.1Total Debt 653.7 537.1 3,678.6 2,078.6Deferred Tax Liability 248.7 202.4 252.4 302.4Minority Interest 66.9 24.1 127.3 249.6Other NCL & LT Provisions 178.3 206.1 256.1 306.1Total Liabilities 8,079.1 9,843.8 15,211.6 16,639.9Gross Block 4,626.0 5,053.0 7,572.6 8,222.6Accumulated Depreciation 1,928.3 2,332.9 2,780.4 3,314.9Net Block 2,697.7 2,720.1 4,792.2 4,907.7Capital WIP 304.1 576.0 546.0 546.0Total Fixed Assets 3,001.9 3,296.1 5,338.2 5,453.7Investments 178.5 1,658.4 458.4 458.4Goodwill on Consolidation 657.9 1,648.1 5,590.5 5,590.5Inventory 2,129.5 2,503.6 2,893.2 3,626.8Debtors 2,464.1 2,656.6 3,278.9 4,110.3Loans and Advances 301.7 342.1 385.9 436.8Other Current Assets 231.3 193.2 192.2 202.3Cash 797.5 481.4 161.3 382.9Total Current Assets 5,924.0 6,176.8 6,911.4 8,759.1Creditors 1,594.3 1,956.1 2,121.6 2,659.6Provisions & Other CL 532.6 1,337.9 1,410.0 1,514.1Total Current Liabilities 2,127.0 3,293.9 3,531.6 4,173.7Net Current Assets 3,797.1 2,882.8 3,379.8 4,585.4Deferred Tax Assets 70.8 84.2 84.2 84.2Long term Loans and advances 373.0 274.2 360.5 467.7Application of Funds 8,079.1 9,843.8 15,211.6 16,639.9


Key ratios (Year-end March) FY14 FY15 FY16E FY17EPer Share data (|)Reported EPS 41.0 53.6 55.7 75.4Cash EPS 46.8 63.3 65.7 87.3BV per share 154.6 197.9 243.0 305.6Dividend per share 5.9 10.5 10.6 12.8Cash per Share 17.8 10.7 3.6 8.5Operating Ratios (%)EBITDA / Net Sales 26.2 28.7 28.1 30.0EBIT / Net Sales 23.8 25.3 24.9 27.0PAT / Net Sales 16.6 19.1 17.7 19.2Inventory Days 70.1 72.5 75.0 75.0Debtor Days 81.1 77.0 85.0 85.0Creditor Days 52.5 56.7 55.0 55.0Return Ratio (%)RoE 26.5 27.1 22.9 24.7RoCE 35.4 34.8 24.2 29.6RoIC 38.8 44.7 25.0 31.2Valuation Ratios (x)P/E 40.2 30.7 29.5 21.8EV / EBITDA 25.3 19.9 19.4 14.2EV / Net Sales 6.6 5.7 5.5 4.3Market Cap / Sales 6.7 5.9 5.2 4.2Price to Book Value 10.6 8.3 6.8 5.4Solvency RatiosDebt / EBITDA 0.2 0.1 0.9 0.4Debt / Equity 0.1 0.1 0.3 0.2Current Ratio 2.4 1.7 1.9 2.0Quick Ratio 1.4 1.0 1.1 1.1



ICICIdirect.com coverage universe (Healthcare) ICICIdirect Healthcare coverage Universe

I-Direct CMP TP Rating M CapCode (|) (|) (| Cr) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E

Ajanta Pharma AJAPHA 1552 1488 BUY 13693.7 38.3 45.6 53.1 33.1 27.8 23.9 7.8 6.5 5.3 50.6 48.7 46.4 41.9 38.5 35.9

Apollo Hospitals APOHOS 1379 1454 BUY 19237.8 24.0 35.3 0.0 57.5 39.0 0.0 28.0 19.0 0.0 11.6 10.3 14.4 10.6 10.4 13.7

Aurobindo Pharma AURPHA 756 840 BUY 44254.6 28.0 36.7 42.0 27.9 20.5 17.9 10.1 7.8 6.3 23.5 25.5 25.0 30.3 29.9 26.1

Biocon BIOCON 462 469 HOLD 9271.3 20.4 23.0 28.0 18.8 20.4 16.7 6.9 5.4 4.1 10.4 11.8 13.3 12.5 12.7 13.9

Cadila Healthcare CADHEA 1852 1913 BUY 38036.5 56.2 75.1 95.6 20.8 15.6 12.2 14.7 11.2 8.6 21.3 24.6 26.6 26.4 27.3 26.8

Cipla CIPLA 712 650 HOLD 57374.1 14.9 22.3 29.5 30.1 20.1 15.2 3.4 2.8 2.2 13.2 17.6 19.9 10.8 14.3 16.2

Dr Reddy's Labs DRREDD 4144 4600 BUY 70886.2 130.6 159.9 191.6 21.6 17.7 14.7 13.9 11.2 9.2 17.0 19.3 20.6 19.9 20.1 19.8

Glenmark Pharma GLEPHA 990 1000 HOLD 28008.9 16.5 33.7 47.5 38.6 18.9 13.4 16.5 11.6 8.7 12.6 23.7 29.5 14.3 24.0 26.7

Indoco Remedies INDREM 342 385 BUY 3093.8 9.0 12.6 19.2 24.3 17.4 11.3 12.4 10.0 7.1 19.8 22.3 28.0 16.0 19.0 23.4

Ipca Laboratories IPCLAB 722 665 HOLD 9133.4 20.2 25.0 41.5 18.7 17.0 11.6 3.2 2.9 2.4 11.5 11.0 16.6 11.5 11.0 16.6

Jubilant Life Sciences VAMORG 276 168 HOLD 4405.9 -3.7 13.2 23.6 0.0 11.8 6.6 9.5 7.2 5.3 5.7 8.9 12.1 -2.4 8.2 13.4

Lupin LUPIN 1643 1885 BUY 75089.4 53.6 55.7 75.4 30.7 29.5 21.8 -0.4 0.8 0.2 31.1 29.2 30.4 25.3 22.8 23.6

Natco Pharma NATPHA 2315 2200 HOLD 7715.8 31.2 46.4 67.1 23.0 15.5 10.7 15.9 12.2 9.2 15.6 19.6 23.0 12.4 16.6 19.8

Sun Pharma SUNPHA 831 850 HOLD 200558.2 19.6 21.1 32.6 44.2 39.4 25.5 24.6 24.3 16.4 19.0 17.9 22.2 20.7 18.5 23.1

Torrent Pharma TORPHA 1426 1660 BUY 24209.2 44.4 94.4 79.0 32.0 15.0 18.0 13.6 5.1 6.6 19.8 44.9 30.3 30.2 44.4 29.0

Unichem Laboratories UNILAB 250 214 HOLD 2275.8 8.3 14.8 21.4 24.8 13.9 9.6 17.9 9.4 6.5 8.4 17.1 21.5 8.7 14.5 18.5

RoNW (%)Company

EPS (|) PE(x) EV/EBITDA (x) RoCE (%)



RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: >10%/15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more;

Pankaj Pandey Head – Research [email protected]

ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC, Andheri (East) Mumbai – 400 093

[email protected]


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August Lupin (LUPIN) - ICICI Direct

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