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MOSL: LUPIN (Buy)-Recovery expected only from 2H

​Lupin: Recovery expected only from 2H

(LPC IN, Mkt Cap USD8.6b, CMP INR995, TP INR1125, 13% Upside, Buy)

• Lupin's (LPC) 1QFY18 revenue declined ~13% YoY to INR38.7b (12% miss), primarily due to weak US business (-27% YoY to USD238m) on the back of lower Glumetza sales. EBITDA declined 41% YoY to INR7.7b, with margins coming in lowest in 16 quarters at 20%.
• Guidance lowered for FY18: LPC guided for revenue decline of low-single-digit in FY18 v/s earlier guidance of 7-8% growth. EBITDA margin guidance was lowered from 25-26% to 21-23% due to INR appreciation, competition in the Metformin portfolio and high-single-digit price erosion in the US.
• US business - bottom is still a quarter away: Large part of the decline in US sales (USD238m from USD276m in 4Q) was because of lower Glumetza sales. US business grew 9% QoQ without Glumetza, and 11% QoQ without Fortamet and Glumetza. The company expects US business to bottom in 2Q (as Glumetza sales are expected to come down further). Few key approvals expected in FY18 are Tamiflu, Lanthanum, Levothyroxine, Hydrocodone APAP (2Q), Potassium Chloride (2Q) and Oxycodone APAP. Bigger approvals like Toprol EL, Renexa and Renvela are expected in FY19.
• Domestic business - expect recovery in coming quarters: India business (down ~2% YoY to INR9.3b) performed relatively better than peers. Without GST impact, EBITDA margin would have improved by ~200bp. LPC expects industry to grow at ~8% YoY. The company is expected to outperform industry growth by 20-30%.