>LUPIN: Result Update 1QFY2011

Lupin reported in-line 1QFY2011 results. The company continued its strong traction both in the US (Lotrel and Antara) as well as in the domestic (field force expansion) market. Though a delay in the launch of OC products in US is marginally disappointing, it’s unlikely to change the competitive scenario in the segment. We maintain an Accumulate on the stock and reiterate it as one of our top picks in the sector.

■ In-line results: Lupin reported net sales of Rs1,312cr (Rs1,285cr), which was in line with our estimates on the back of continuous traction in the US and domestic formulation segments. The company reported OPM of 20.0% (17.9%), up 210bp yoy on higher gross margins and exceeded our estimates. Net profit stood at Rs196.3cr (Rs140.1cr), up 40.1% driven by top-line growth and OPM expansion.

■ Outlook and Valuation: Lupin is at a discount of 7-23% to larger peers like Dr. Reddy’s, Sun Pharma and Cipla, which we believe is unwarranted given the scale achieved by the company in the last few years. We have valued the company at 18x (10% discount to large peers). The stock is currently trading at 20.1x and 16.1x FY2011E and FY2012E earnings, respectively. We maintain an Accumulate on the stock, with a Target Price of Rs2,099 and reiterate it as one of our top picks in the sector.

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