MOSL: LUPIN (Buy)-US/Japan impressive, delivering well on product/geographical mix
LUPIN: US/Japan impressive, delivering well on product/geographical mix
(LPC IN, Mkt Cap USD4.9b, CMP INR761, TP INR885, 16% Upside, Buy)
** Sales up across segments barring API: Revenue grew 15% YoY to INR44b (our estimate: INR44.8b). US sales increased 29% YoY to USD218m (39% of sales), while Japan sales were up 18.2% YoY to INR5.9b (14% of sales) led by strong volumes traction. Domestic formulation (DF) sales grew 9.7% YoY to INR13b (30% of sales), mainly led by prescription business (+12.3% YoY). RoW sales too increased 6.8% YoY (10% of sales). However, API sales declined 2.6% YoY to INR3.5b.
** Exclusive sales in US/better geographical mix keep margins at elevated level: Gross margin expanded 240bp YoY to 65%, largely due to a superior product mix. This, along with lower employee cost/R&D spend (-160bp/-120bp YoY), led to EBITDA margin improvement of 110bp YoY to 19.5% (our estimate: 20.5%), partly offset by higher other expenses (+330bp YoY). EBITDA was up 21.5% YoY to INR8.6b (our estimate: INR9.2b). However, higher other income and lower tax rate led to relatively high adj. PAT growth of 49% YoY to INR3b.
** Concall highlights: (a) LPC is awaiting feedback from the USFDA on g-Proair, which might delay the approval for the same. (2) Traction in levothyroxine would improve in 2HFY20 based on capacity ramp-up and approval for additional dosage. (3) There have been queries from European regulatory authority on Etanercept, which might delay the approval to 4QFY20/1QFY21. (4) LPC is working on resolving one of the key regulatory issues related to out-of-specification (OOS) and would take about six months to resolve the same.
** Valuation and view: We cut our EPS estimate by 12%/7% to INR29/INR40 for FY20/21 to factor in the delay in approvals/gradual ramp-up in key products in US, lower trade generics business in DF and a higher effective tax rate. We continue valuing LPC at 21x 12M forward earnings to arrive at a TP of INR885. We remain positive on LPC on the back of its good limited-competition ANDA pipeline and outperformance in branded DF. Maintain Buy. Update on sites under regulatory hurdles would be a key monitorable over the medium term.
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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