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MOSL: LUPIN (Buy)-Subdued near-term outlook; Potential approval remains key

LUPIN: Subdued near-term outlook; Potential approval remains key

(LPC IN, Mkt Cap USD4.9b, CMP INR759, TP INR875, 15% Upside, Buy)

• DF drives overall revenue growth: 2QFY20 revenues were up 10% YoY at INR43.5b (in-line), largely led by Domestic formulation (DF, 31% of sales). DF sales grew 11.5% YoY to INR13.4b. US sales increased 8% YoY to USD184m (31% of sales) while EMEA sales grew 8.3% YoY to INR3.2b (8% of sales). Overall growth was offset to some extent due to muted APAC (15% of sales) and LATAM (3% of sales) business.
• Better operating leverage drives margin on YoY basis: Gross margin (GM) for the company was up 30bp YoY at 65%, largely due to superior product mix. EBITDA margin stood at 16.8% (v/s est. 18.6%) and expanded at a higher rate of 290bp YoY due to controlled costs (employee cost down 90bp YoY and other expenses down 290bp YoY as % of sales). EBITDA came in at INR7.3b (v/s est. INR8b), up 33% YoY. Lupin had an exceptional loss of INR5.5b due to settlement of litigation with the State of Texas and loss on divestment of its entire stake in Kyowa Criticare. Adjusting for the same, PAT grew 11.5% YoY to INR3b (in-line).
• For 1HFY20, revenue/ EBITDA/PAT grew 12.4%/26.5%/27.9% YoY to INR87.8b/INR16b/INR6b.