MOSL: ANNUAL REPORT THREADBARE (ART) | LUPIN FY17-Acquired businesses profit contribution remain subdued
​ANNUAL REPORT THREADBARE (ART) | LUPIN FY17: Acquired businesses profit contribution remain subdued
Lupin’s (LPC) FY17 annual report analysis highlights the management’s increasing thrust on transforming it into a complex generics company and achieving growth through acquisitions. This led to (a) R&D costs rising by 34% to INR23.1b, 13% of revenue, (b) depreciation and amortization rising by 86% to INR9.1b, 5% of revenue, and (c) finance cost rising by 1.5x to INR1.5b, 1% of revenue. Consequently, pre-tax margin declined from 23% in FY16 to 20%. Revenue grew 23% YoY to INR174.9b, driven by limited competition in gGlumetza / gFortamet, acquisition of Gavis and 21 brands in Japan. Our analysis of acquired subsidiaries highlights high contribution towards revenue growth; however, their profitability contribution has remained subdued. Operating cash flows turned positive to INR41.1b (FY16: negative INR3.1b), as cash conversion cycle improved to 186 days (FY16: 242 days). Deteriorating asset turnover and profitability margins over the last two years led to continued decline in RoE to 21% (FY16: 23%; FY15: 30%).
Ltd. competition in two drugs and acquisitions drive revenue
Revenue grew 23% to INR174.9b, primarily driven by (a) limited competition in gGlumetza and gFortamet, and (b) Gavis and Shionogi’s product acquisitions. US sales increased 36% to INR81.4b (FY16: INR59.8b). Japan revenue grew 32% to INR18b, led by contribution of INR5.8b (USD90m) from the acquired Shionogi product portfolio.
Acquired businesses drag overall profitability
LPC has made ~14 acquisitions over FY08-17. In FY17, the revenue contribution from these subsidiaries (except Gavis and Temmler) was INR33.4b (19% of consolidated revenue); however, their PAT contribution was low at INR1.1b (4% of consolidated PAT). As a result, consolidated PAT margin was just 15% against standalone PAT margin of 25%.
Lupin is a pharmaceutical company. Co. produces, develops, and markets a range of branded and generic formulations and active pharmaceutical ingredients (APIs) in India, the United States, and Japan. Co. offers various formulations for use in the areas of cephalosporin, cardiovascular (CVS), central nervous system (CNS), anti-asthma, anti-tuberculosis, diabetology, dermatology, gastro intestinal, and other therapy segments; and APIs for use in therapeutic areas of antibiotics, anti-tuberculosis, CVS, CNS, analgesics, and anti-gout. Co. also develops and out-licenses its drug delivery technologies and platforms; and creates and develops biosimilars for various therapeutic indications.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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