>Lupin (CITI)

Buy: Brick by Brick – Entering Phillipines

■ Brick by Brick — Lupin took another step in its effort to build a global presence through small acquisitions by buying majority stake in Multicare Pharma of Philippines (4th acquisition in FY09 – list on page 2). We expect this deal, albeit small, to be EPS & RoI accretive in FY10. We like Lupin’s strategy to make small acquisitions (as against chasing large deals) as it keeps a check on valuations while providing market access in key markets.

■ About Multicare — A spin off from Astra Philippines, Multicare is focused on women's health & child care, with a basket of OTC & generics products & a sales force of 140 people (no manufacturing). It had sales of PHP272m (US$5.5m) in FY08 & was profitable – albeit slightly lower than Lupin. Lupin would look to drive growth by leveraging Mutlicare's franchise to launch its own products as well as exploit synergies in order to improve profitability. Multicare’s founder (Mr. Romeo Sy) will continue to run the biz as president.

■ A fast growing market — Philippines is one of the fastest growing markets in ASEAN, estimated at US$2.6b (OTC: US$730m; generics: US$290m) & set to grow to cUS$4bn in 2012E. Growth in generics is likely to be higher (c22% CAGR to US$640m) on pro generics regulation. We expect Lupin to be a key beneficiary of this growth post this acquisition.

■ Remains a top pick — Lupin fits well within our prescription for growth in a troubled generics industry, given its differentiated biz & improving profitability. It has made good progress in its effort to move up the value chain in terms of product (APIs to formulations) & markets (less regulated to regulated) & built global scale in key product categories. With good execution in difficult markets & accretive acquisitions we expect EPS CAGR of 25% over FY08-11E.

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