Lupin Ltd. - i.marketsmojo.com€¦ · Lupin Ltd. Valuations & Views: We believe in Lupin’s...

RESULT UPDATE 22nd May 2017

Lupin Ltd.

RESULT UPDATE 31st October 2017

2 Page

Lupin Ltd CMP

INR 1027 Target

1,187

Potential Upside

15.7%

Market Cap (INR Mn)

464,335 Recommendation

BUY Sector

Pharma

India Equity Institutional Research II Result Update – Q2FY18 II 31st October, 2017

MARKET DATA

SHARE PRICE PERFORMANCE

SENSEX 33266

NIFTY 10364

MARKET INFO

Particulars (INR Mn) FY15 FY16 FY17 FY18E FY19E

Revenues 1,25,997 1,37,016 1,71,198 1,78,915 2,00,385

EBITDA 36,196 37,535 44,932 43,119 50,297

APAT 24,032 22,707 25,575 25,094 29,805

AEPS (Rs) 53.5 50.4 56.6 55.6 66.0

P/E (x) 36.4 38.6 20.6 21.0 17.7

EV/EBITDA(x) 24.2 25.0 13.4 11.6 9.6

ROAE (%) 30.4 22.9 20.9 17.5 18.1

KEY FINANCIALS

Source: Company, KRChoksey Research

Result highlights

•Lupin reported Q2FY18 revenue of INR 38,741 Mn which degrew 8% Y-o-Y and grew by 1.8% Q-o-Q. Strong growth from domestic and Ex-US business led to spurt in revenues. However, the company has witnessed decline of 15% Q-o-Q in its US business with sales at INR 13,611 VS INR 16,081 in Q1FY18.

•EBITDA stood at INR 8,530 Mn and has witnessed an increase in margin which stood 21.6% in Q2 FY18 as against 18.3% in Q1 FY18. Lower R&D and other expenses have resulted increase in EBITDA margins Q-o-Q. However, EBITDA has decline Y-O-Y on basis by 406 bps.

•PAT for Q2FY18 was INR 4,528 Mn with margins of 11.4% which has increased by 159 bps Q-o-Q and has witnessed decline of 914 bps y-o-y. Higher other income which had forex gain of INR 42 crores led to spurt in PAT margins.

•Lupin has 49 first to file (FTF) out of which 25 are exclusives

Particulars Sep 17 Jun 17 Mar 17

Promoters 46.8 46.7 46.69

FIIs 27.69 30.86 31.87

DIIs 12.17 9.56 9.14

Others 13.35 12.88 12.29

Total 100 100 100

SHARE HOLDING PATTERN (%)

Revenue CAGR between FY 17 and FY 19E

8.2%

PAT CAGR between FY 17 and FY 19E

8%

Continued price erosion and competition led to muted growth in Q2FY18

The company has posted muted growth with a marginal growth of 1.8% Q-o-Q and degrowth of 8% Y-O-Y due to high base business in FY17 which had higher revenues from its gGlumetza and gFortamet drugs which had a 180 days exclusivity in the US. We expect Lupin to post healthy revenues on the back of strong growth from its domestic and its Ex-US business.

North America’s business continues to see pressure: The North America’s business has witnessed declining growth with sales at INR 13,611 Mn in Q2FY18 with a degrowth of 32% Y-o-Y and 15% Q-o-Q due to high base in FY17 and additional competition in Minastrin. The Company launched 5 products in the US market during the quarter making the total to 147 products in the US generics market. Going ahead, we expect the US price erosion to be in range of 8-9% on the base business. The US business will continue to see pressure due to increasing competition, channel consolidation ,appreciating Rupee and base business erosion.

Japan continues to grow well: The acquired brands from Shionogi performed well which led to increase in Japan’s revenues from INR 4,935 in Q1FY18 to INR 4,898 in Q1FY18. Going ahead, we expect Japan revenues to deliver a growth of 16% in FY18 due to increasing market penetration of Shionogi brands.

Domestic business grew strongly post GST: Domestic business of the company has outperformed the industry growth on high single digit and has posted robust sales of INR 11,593 registering Q-o-Q growth of 24.3% and Y-o-Y growth of 16.4%. The company has made additional product launches which has helped to boost the revenues. We expect the domestic business of the company to grow 15% on Y-o-Y basis.

New products to add growth, operational efficiency to continue....

Shares outs (Mn) 452

EquityCap (INR Mn) 904

Mkt Cap (INR Mn) 464335

52 Wk H/L (INR) 1572/920

Volume Avg (3m K) 2024.0

Face Value (INR) 2

Bloomberg Code LPC IN

65

95

125

155

Oct

-14

Ap

r-15

Oct

-15

Ap

r-16

Oct

-16

Ap

r-17

Oct

-17

Sensex Lupin

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com

KRChoksey Research is also available on Bloomberg KRCS<GO>

Thomson Reuters, Factset and Capital IQ

ANALYST Vaibhav Chowdhry, [email protected], +91-22-6696 5571 Dhara Patwa, [email protected], +91-22-6696 5585

3 Page

Lupin Ltd. Valuations & Views: We believe in Lupin’s growth story led by its unique offerings of specialty drugs and biosimilar. We expect Lupin to deliver robust growth on the back of its exclusive products and complex generics which are limited competition products. The domestic and Ex-US business will also grow strongly. We believe that from FY19 Lupin will pick up its growth momentum on the back of approvals and launch of limited competition products in the market. The company has a basket of total 152 US ANDA out of which 49 are first to file and 25 are exclusive in nature. The company plans to launch Axiron, hydrocodone, Tamilfu, levothyroxine in FY19 which will give a boost to sales. The company is developing Enbrel (etarnacept) which is currently in Phase III and Lupin plans to file it in FY19 in Japan and later in Europe. Lupin has an exhaustive pipeline of DPI inhalers and complex generics which has a huge market size. These opportunities will give an escalated growth trend to the company’s revenues and will give a boost to the topline in long run. Going ahead, we believe the topline to deliver a Y-o-Y growth of 12% with sales at INR 203,391 mn in FY19 and EBITDA at INR 50,297 with margins at 24.7%. At the CMP of INR 1,027 Lupin is trading at an EPS of INR 66 for FY19E, we recommend ‘BUY’ rating on the stock, with a target price of INR 1,187 that offers a potential upside of 15.7%.


Exhibit 1: US witnessed decline in growth…..

3,231

3,234 3,739

3,442

3,651 3,886

4,202

4,891

3,944

-20.0

0.0

20.0

40.0

60.0

0

1000

2000

3000

4000

5000

6000

Q1FY16 Q3FY16 Q1FY17 Q3FY17 Q1FY18

RoW Sales YoY (%)

%

INR M

n


Source: Company, KRChoksey Research Source: Company, KRChoksey Research

33,213 35,558

41,811 44,393 42,905 44,828

42,533 38,696 39,519

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

0

10000

20000

30000

40000

50000

Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18

Revenue EBITDA Adj PAT EBITDA margin (%) PAT margin(%)

%

INR M

n

11,550 14,049

21,905 21,886 19,978

21,755 19,007

16,018 13,611

(40)

(20)

0

20

40

60

80

100

0

5000

10000

15000

20000

25000


%

INR

mn

US Sales YoY (%)

Exhibit 2: But strong growth in domestic business was seen.





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Lupin Ltd.

Exhibit 3: RoW business saw a growing trend Exhibit 4: Along with the APAC revenues.

Exhibit 7: The spend in R&D has resulted in higher product launches and ANDA filings for the past years

Exhibit 6: Along with the capex. Exhibit 5: The R&D spend of the company has been decreased…

173 176 196 210

343 368

42 46 62

77

146 180

0

100

200

300

400

FY12 FY13 FY14 FY15 FY16 FY17

No

. of

AN

DA

Cumulative ANDA filings Cumulative ANDA launched

8,851

8,738

8,712

7,615 9,499

9,858

9,912

8,788 9,324

(5)

0

5

10

15

20

0

3000

6000

9000

12000


%

INR

mn

Domestic Sales YoY (%)





5,042 4,317

5,146

5,416 5,520 5,601

6,118 5,989

6,357

0%

15%

30%

45%

60%

0

1750

3500

5250

7000

Q2FY16 Q4FY16 Q2FY17 Q4FY17 Q2 2018

INR

mn

APAC YOY (%)

0%

5%

10%

15%

20%

0

2000

4000

6000

8000


INR

mn

R&D expenses (LHS) as a % of sales (RHS)

0%

8%

16%

24%

32%

0

2,000

4,000

6,000

8,000


INR

mn

Capex as a % of sales (RHS)





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Lupin Ltd.

Q2FY18 Result Snapshot Exhibit 8: Consolidated Result Update (INR Mn)

Key Con-call Highlights:

•Management expects that there will be high single digit price erosion in the US which will impact the revenues. The pricing pressure in the US and competition from McKesson and Walmart is going to affect the business adversely. However, the entry of Amazon will be a positive surprise as the number of buyers will increase.

•The company will maintain its R&D spend to INR 2000 Mn i.e approx of INR 500 Mn per quarter in order to grow and fund its ongoing clinical trials. The company has cut down its R&D spend without compromising its ongoing trials.

•The company expects India business to grow at 15% on Y-o-Y basis.

•The company has 154 pending ANDA filings which has a target market size of USD 76 bn. Out of these 154 ANDA, 45 are first to file and 11 are exclusive in nature.

•Lupin is developing a biosimilar of Enbrel (Etarnacept) which has market size of USD 250 mn in the international market. The company is planning to file it in Japan in FY19. It also plans to start the clinical trial and pivotal studies of Advair – an inhaler which is in phase III trial in the end of FY18.

• The company remain intact with guidance of EBITDA margins to be in the range of 21-23% in Q3 and Q4 of FY18.



INR Mn Q2FY18 Q1FY18 Q2FY17 QoQ (%) YoY (%)

Net Sales 38,741.0 38,068.0 42,111.8 1.8% -8.0%

Other operating income 778.0 627.5 793.3 24.0% -1.9%

Total Income 39,519.0 38,695.5 42,905.1 2.1% -7.9%

Expenditure 30,988.9 31,012.0 32,624.4 -0.1% -5.0%

Materials Consumed 12,865.3 12,326.0 12,428.5 4.4% 3.5%

% of sales 33.2% 32.4% 29.5% 2.6% 12.5%

Employee Cost 7,249.6 7,179.7 7,123.9 1.0% 1.8%

% of sales 18.7% 18.9% 16.9% -0.8% 10.6%

Other Exp 10,874.0 11,506.3 13,072.0 -5.5% -16.8%

% of sales 28.1% 30.2% 31.0% -7.1% -9.6%

EBITDA 8,530.1 7,683.5 10,280.7 11.0% -17.0%

EBITDA margin (%) 21.6% 19.9% 24.0% 173bps -238bps

Depreciation 2,721.8 2,605.1 2,111.9 4.5% 28.9%

EBIT 5,808.3 5,078.4 8,168.8 14.4% -28.9%

Other Income 740.4 319.7 271.1 131.6% 173.1%

Interest expenses 479.2 439.0 263.0 9.2% 82.2%

E/o expense 0.0 0.0 0.0 0.0% 0.0%

PBT 6,069.5 4,959.1 8,176.9 22.4% -25.8%

Tax 1,540.6 1,368.0 1,589.4 12.6% -3.1%

Effective tax rate (%) 25.4% 27.6% 19.4% -8.0% 30.6%

PAT 4,528.9 3,591.1 6,587.5 26.1% -31.3%

Share of profit after tax of associate 0.0 0.0 0.0

Minority Interest 18.6 10.6 6.2 75.5% 200.0%

Reported PAT 4,510.3 3,580.5 6,581.3 26.0% -31.5%

Net Margin (%) 11.4% 9.3% 15.3% 216bps -393bps

EPS 10.1 7.5 14.0 35.1% -28.1%





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Lupin Ltd.

Exhibit 9: Income Statement


Exhibit 10 : Balance Sheet


INR Mn FY15 FY16 FY17 FY18E FY19E

Total operating income 1,27,700 1,42,085 1,74,943 1,81,599 2,03,391

Op. Expenses 91,504 1,04,550 1,30,012 1,38,480 1,53,094

EBITDA 36,196 37,535 44,932 43,119 50,297

Other Income 2,398 1,877 1,065 1,172 1,172

Depreciation 4,347 4,635 9,122 8,980 9,945

EBIT 34,246 34,777 36,875 35,310 41,524

Interest 98 446 1,525 1,525 1,357

PBT 34,148 34,330 35,349 33,785 40,166

Tax 9,704 11,536 9,785 8,615 10,283

PAT 24,444 22,795 25,564 25,170 29,884

Minority 412 88 72 75 79

Adj Pat 24,032 22,707 25,575 25,094 29,805


Equity Share Capital 899 901 903 903 903

Reserves & Surplus 87,842 1,08,943 1,34,073 1,51,219 1,76,412

Total Shareholders Fund 88,741 1,09,844 1,34,976 1,52,123 1,77,315

Minority Interest 241 321 345 345 345

Non- current liabilities 5,764 60,341 69,546 63,898 58,307

Long term Borrowings 1,679 53,739 56,478 50,830 45,239

Deferred tax liabilities 2,024 2,045 3,949 3,949 3,949

Other LT liabilities & prov 2,061 4,557 9,120 9,120 9,120

Current Liabilities 36,631 53,872 61,205 60,131 59,959

Short-term borrowings 3,692 17,454 23,043 19,587 16,649

Trade payables 19,561 21,918 25,889 27,658 29,780

Other cur liabilities & Prov 13,379 14,500 12,273 12,887 13,531

Total Liabilities 1,31,377 2,24,377 2,66,072 2,76,497 2,95,927

Assets

Non- current Assets 53,054 1,26,607 1,46,530 1,42,513 1,40,234

Fixed assets 49,442 1,16,023 1,31,659 1,31,717 1,29,267

Non-current investments 25 75 985 1,084 1,192

Deferred tax assets (net) 842 806 5,076 824 824

Long-term loans & adv 2,742 9,703 8,810 8,889 8,951

Other non-current assets 3 0 0 0 0

Current assets 78,323 97,770 1,19,542 1,33,984 1,55,693

Current investments 0 0 0 0 0

Trade receivables 26,566 45,498 43,073 42,891 50,508

Inventories 25,035 31,787 36,423 36,273 40,626

Cash & bank balances 4,814 8,379 6,994 21,087 30,128

Short-term loans & adv 3,420 7,372 159 182 210

Other current assets 18,488 4,734 32,893 33,551 34,222

Total Assets 1,31,377 2,24,377 2,66,072 2,76,497 2,95,927






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Lupin Ltd.


Exhibit 11: Cash flow statement


Exhibit 12: Ratio Analysis

INR Mn FY15 FY16 FY17 FY18E FY19E PBT 34,148 34,330 35,349 39,791 47,493 Depreciation 4,347 4,635 9,122 8,980 9,945 Interest Exp 98 446 1,525 1,525 1,357 Others -878 97 79 62 CF before W.cap 37,715 39,509 45,997 50,376 58,857 Inc/dec in W.cap -949 -31,537 -21,412 -2,832 -10,133 Op CF after W.cap 36,766 7,972 24,585 47,544 48,725 Less Taxes -9,436 -11,662 -9,785 -10,147 -12,158 Net CF From Operations 27,330 -3,689 14,800 37,397 36,566 Inc/(dec) in F.A + CWIP -8,676 -57,152 -34,310 -9,038 -7,495 (Pur)/sale of Investments -6,294 -12,282 -910 -99 -108 others 4,425 0 0 0 0 CF from Invst Activities -10,545 -69,434 -35,220 -9,137 -7,603 Loan Raised/(repaid) -809 61,645 6,802 -10,629 -9,886 Equity Raised 413 536 2 0 0 Dividend -1,573 -4,055 -4,543 -4,525 -5,441 CF from Fin Activities -1,969 58,126 2,261 -15,154 -15,328 Net inc /(dec) in cash 14,816 -14,998 -18,159 13,106 13,636 Others 202 1,929 17,138 -79 -204 Op. bal of cash 6,066 21,084 8,015 6,994 20,022 Cl. balance of cash 21,084 8,015 6,994 20,022 33,453


EPS 53.5 50.4 56.6 55.6 66.0

CEPS 63.1 60.7 76.8 75.5 88.0

BVPS 197.4 243.8 298.9 336.9 392.6

DPS 9.0 9.0 9.9 8.4 10.0

Payout (%) 16.9 17.9 17.6 15.1 15.2

Valuation (x)

P/E 36.4 38.6 20.6 21.0 17.7

P/BV 9.9 8.0 3.9 3.5 3.0

EV/EBITDA 24.2 25.0 13.4 11.6 9.6

Dividend Yield (%) 0.5 0.5 0.9 0.7 0.9

Return ratio (%)

EBIDTA Margin 28.3 26.4 25.7 23.7 24.7

PAT Margin 18.8 16.0 14.6 13.8 14.7

ROAE 30.4 22.9 20.9 17.5 18.1

ROACE 38.2 24.3 17.7 15.2 17.0

Leverage Ratios (x)

Long Term D/E 0.0 0.5 0.4 0.3 0.3

Net Debt/Equity 0.1 0.6 0.6 0.3 0.2

Debt/EBITDA 0.1 1.9 1.8 1.6 1.2

Interest Coverage 349.1 77.9 24.2 23.2 30.6

Current ratio 2.4 2.7 3.1 3.3 3.6

Growth Ratios (%)

Income growth 13.1 11.3 23.1 3.8 12.0

EBITDA growth 20.5 3.7 19.7 -4.0 16.6

PAT growth 30.9 -5.5 12.6 -1.9 18.8

Turnover Ratios

F.A Turnover x 2.5 1.6 1.4 1.4 1.4

Inventory Days 67 76 73 74 70

Payable days 74 96 94 88 85






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Lupin Ltd.


Lupin Ltd.

Date CMP (INR) TP (INR) Recommendation

31-Oct-17 1027 1187 BUY

03-Aug-17 995 1169 BUY

10-Feb-17 1,495 1,730 BUY

10-Nov-16 1,529 1,769 BUY

10-Aug-16 1,608 1,863 BUY

23-May-16 1,506 1,838 BUY

08-Feb-16 1,819 1,838 HOLD

28-Oct-15 1,945 2,103 ACCUMULATE

14-Oct-15 1,920 1,986 HOLD

24-Jul-15 1,680 1,780 ACCUMULATE

07-Jul-15 1,920 1,774 HOLD

14-May-15 1,684 1,774 HOLD

09-Apr-15 2,090 2,100 HOLD

Rating Legend

Our Rating Upside

Buy More than 15%

Accumulate 5% - 15%

Hold 0 – 5%

Reduce -5% – 0

Sell Less than -5%

ANALYST CERTIFICATION:

We, Vaibhav Chowdhry (B.Com, MBA), research analyst and Dhara Patwa (BBA,MBA), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & Conditions and other disclosures:

KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is a registered Research Entity vides SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014.

We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities.

KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers.

The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances.

This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KRCSSPL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. KRCSSPL accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein, .In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest.

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It is confirmed that, Vaibhav Chowdhry (B.Com, MBA), research analyst and Dhara Patwa (BBA,MBA), research associate, of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions.

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