EUR 120.00 For Business Accounts Only

MOSL: LUPIN (Buy)-In-line performance adjusting for one-offs-outlook positive

Lupin: In-line performance adjusting for one-offs; outlook positive

(LPC IN, Mkt Cap USD5.3b, CMP INR842, TP INR1000, 19% Upside, Buy)

 

• Revenue growth driven by DF business: Revenue increased ~8% YoY to INR42.9b (our estimate: INR42b) in 3QFY19, led by domestic formulation (DF) (+11% YoY to INR12b; 28% of sales) and API (+35% YoY to INR3.6b; 8% of sales) businesses. Growth was partly offset by a 1% YoY decline in US sales (INR14b, 33% of sales) and moderate growth in Asia Pacific, Europe, the Middle East, Africa, and Latin America. LPC received licensing income (MALT1 Inhibitors) of INR2.1b from Abbvie.
• Profitability impacted by one-offs: Adjusting for licensing income and forex loss, the gross margin shrank ~70bp YoY to 64.3%. EBITDA margin contracted at a near similar rate of ~60bp YoY to 16.1% (our estimate: 15.5%), as lower R&D spend (-200bp YoY) was largely offset by higher employee cost (+142bp YoY) and other expenses (+160bp YoY). R&D expense stood at INR4.3b (9.7% of sales) v/s INR4.8b (12.2% of sales) in the year-ago period. LPC incurred an exceptional expense of INR3.4b (EUR42.8m) toward provisioning related to Perindoril litigation. As a result, LPC reported a loss of INR1.5b v/s a gain of INR2.2b in 3QFY18. Adjusting for licensing income/litigation expense/forex loss, PAT was stable YoY at INR2.6b (our estimate: INR2.5b). For 9MFY19, sales stood at INR121b (+3% YoY), EBITDA at INR17.7b (-23% YoY) and PAT at INR7.3b (-32% YoY).
• Key concall highlights: (1) US base portfolio is now quite diversified for LPC, implying limited price erosion, going forward. (2) US branded sales were USD8m (incl. Solosec sales of ~USD3-4). (3) LPC remains confident of maintaining momentum with respect to tracking higher Solosec prescription. (4) LPC expects USFDA resolution of warning letter at its Pithampur/Goa facility in 1HFY20.