Tuesday, November 4, 2008


Lupin’s 2QFY09 results were above our estimates. Key highlights:
? Net sales grew by 42% to Rs9.3b (vs estimates of Rs8.3b) while adjusted PAT grew by 53% to Rs1.15b (vs estimates of Rs956m). Organic top-line growth (excluding Kyowa & Rubamin acquisitions) was 18%. EBITDA margins expanded by 200bp to 19% (vs estimate of 18%) led by better product-mix and currency depreciation.

Niche/IPR opportunities gaining visibility – Lupin has a track record of launching low-competition IPR driven products in the US for the past few years. We expect this trend to continue in the future also with the company targeting to launch oral contraceptive products in the coming years.

Expect 30% EPS CAGR – We expect Lupin’s core operations (excluding one-off upsides) to record 25% sales and 30% earnings CAGR for FY08-10 led by traction in regulated markets, strong growth in domestic formulations and incremental savings from tax-exempt zones. The growth will be led by 23% CAGR for the regulated dosage form business and 21% CAGR for the domestic formulations business. Lupin is likely to witness a gradual improvement in the underlying fundamentals led by an expanding US generics pipeline niche / Para-IV opportunities in the US, strong performance from Suprax (branded product in US) and ramp-up in formulation revenues from its European initiative. Incremental benefits are likely to be visible from the Jammu facility which enjoys fiscal benefits. We expect the company to record EPS of Rs49.7 and Rs63.8 for FY09 and FY10 respectively. Given the strong earnings growth, valuations at 12.7x FY09E and 9.9x FY10E consolidated earnings are attractive.
Reiterate Buy.