Lupin Beats Market Forecast, Reports Higher Q3FY13 Margins

Pharma major Lupin has beat market expectations by reporting a 43% jump in net profits to Rs 343 crore against market expectations of Rs 299 crore. Sales were up by 37.6% to Rs 2466 crore. The stupendous performance of the company was due to its strong operating performance as well as high growth in revenues from the US.

Business Performance – APIs & Formulations

Lupin derives 90% of its revenues from its formulations business, while 10% comes from the APIs business. During the quarter, the revenues from the APIs business rose by 19% to Rs 235 crore. The formulations business has reported a much better growth rate of 40%.

The company has seen strong growth in all the key geographical markets, with the US revenues increasing by 68%. Lupin said that its newly launched generic version of Tricor has shown a robust performance. During the quarter, it launched 5 products in the US market that also helped the company to report high growth.

Growth in Japan and South Africa was at 48% and 43% respectively. Revenues from Europe declined by 7%, while those in the Rest of the World (RoW) market grew moderately by 8%. However, since Europe contributes only 2.4% to its total revenues and RoW contributes 4.5%, these numbers have not impacted the company’s growth numbers.

The growth in the domestic market was at 14%. In a conference call, the company’s management said that the slowdown in the domestic pharma market in the December 2012 quarter also impacted Lupin's growth.

Improved EBITDA Margins

Aided by its robust business performance, the company also saw its EBITDA margins going up by 259 basis points. The cost of materials declined by 269 basis points as a percentage of sales in the quarter because of economies of scale. Employee costs and other expenses also declined, helping to better its margins.

In non-operating costs, its finance cost has declined as the company bought down its debt-to-equity ratio from 0.26x to 0.2x in the September 2012 quarter. The tax rate during the quarter remained high at 38% compared to 23% a year earlier. The company has guided that the tax rate would remain at the level of 34% for FY13.

Regulatory Approvals

During the quarter, Lupin filed 8 ANDAs and received 3 USFDA approvals. It also withdrew 16 ANDAs pending approvals from USFDA. The management said that the withdrawn ANDAs were not commercially viable, and hence, there would not be any negative impact of this going ahead. The company has now 168 ANDAs with a total of 68 approvals.

Lupin also filed 2 MAAs (Marketing Authorization Application) in Europe and received 2 approvals for two other applications. It now has 49 cumulative filings in Europe, of which 34 have received approvals so far.

The company has maintained a growth rate of more than 30% in the first 9 months of FY13, indicating that it is on course to meet its target revenues of USD 3 billion in 3 years’ time. The EBITDA expansion should also be seen as a positive for the company.

On the valuations front, the stock is a bit expensive at the trailing 12 month PE of 25.6x. However, Lupin has enjoyed a premium over its peers due to its strong execution capabilities. From the current levels, we could see 6%-7% price appreciation in the next 3 months.

We have already advised our readers to buy the scrip in our magazine as well as online articles. Those who have already entered the stock should hold the scrip.