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MOSL: Morning India (16/May/18): 1. Britannia Inds; 2. Lupin; 3. Punjab National Bank; 4. MRPL; 5. Endurance Tech; 6. Crompton

MOrning India (16/May/18): 1. Britannia Inds; 2. Lupin; 3. Punjab National Bank; 4. MRPL; 5. Endurance Tech; 6. Crompton

Today’s top research idea

Lupin: Revenue growth at trough in FY18; expected to revive going forward

• Earnings bleak YoY, but improve sequentially: Lupin’s (LPC) 4QFY18 revenue declined ~5% YoY to INR40.3b (est. of INR39.8b), largely led by muted US sales. Ongoing pricing pressure in the US led to 600bp YoY contraction in the gross margin to 66%. The EBITDA margin, too, shrank 840bp YoY to 17.6% (est. of 18.9%) due to increased operating cost. However, on a QoQ basis, both gross margin (+130bp) and EBITDA margin (+30bp) exhibited an improvement, offering some comfort. LPC reported a loss of INR7.8b in the quarter due to impairment provision related to Gavis. Adjusted for the same, PAT stood at INR3.9b (est. of INR3.3b).
• We cut FY19/20E EPS by ~10%/11% and lower our multiple on the back of weak guidance and slower-than-expected improvement in profitability. We remain positive on LPC, led by strong R&D investment of ~INR60b over FY16-18 (much higher than what it invested in a decade prior to that). Timely approval and consistency in compliance are key to create value from this investment over the next 12-18 months. We maintain Buy with a target price of INR865 @18x FY20E PER.

Piping hot news

Karnataka election results: BJP stakes claim to form government, so does JD-S backed by Cong

• BS Yeddurappa of the BJP, Karnataka’s single largest party but short of a majority, staked claim to form government in the state on Tuesday evening. Minutes later, HD Kumaraswamy of the Janata Dal Secular too met the state governor to stake claim, backed by the Congress.