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MOSL: LUPIN (Neutral): FY22 begins on weak note, led by competitive pressures in US

LUPIN: FY22 begins on weak note, led by competitive pressures in US

(LPC IN, Mkt Cap USD6.4b, CMP INR1050, TP INR1040, 1% Downside, Neutral)

 

Ramp-up in niche products – the key to improving profitability

• Lupin (LPC) delivered a significant miss on 1QFY22 core earnings, weighed by lower margins in the US segment. This was offset, to some extent, by a milestone payment of USD50m on the clinical progress of the MEK inhibitor from Boehringer Ingelheim. LPC continues to build a complex product pipeline in the Inhalers/Injectables space and is also exploring a potential spin-off of the NCE business. 
• We cut our FY22E/FY23E EPS by 22%/14%, factoring in a) increased competition in g-Famotidine, b) the failure to supply products due to supply disruption on account of COVID, c) the deferral of sales of certain products, and d) reduced operating leverage. We value LPC at 24x 12M forward earnings to arrive at TP of INR1,040. We maintain Neutral as current valuations adequately factor in potential niche launches over the next 12–15M.

 DF segment supported by lower opex/tax doubling earnings YoY

• LPC reported revenue of INR42.3b in 1QFY22. Adjusted for a milestone payment of USD50m (INR3.7b) received from Boehringer Ingelheim, LPC’s 1QFY22 revenues grew 11% YoY to INR39b (v/s our estimate of INR39.4b).
• Domestic Formulation (DF) sales were up 27.3% YoY to INR16.4b (42% of sales). US sales were up 10% YoY in CC terms to USD172m (35% of sales), but down 12% QoQ. Sales in Growth Markets grew 23.3% YoY to INR3.3b (9% of sales). EMEA (Europe, the Middle East, and Africa) sales were up 4.5% YoY to INR2.6b (7% of sales).