15 April 2015
Update | Sector: Healthcare
Lupin
BSE Sensex
28,800
S&P CNX
8,750
CMP: INR1,948
TP: INR2,275 (+17%)
Buy
Generic competition to Suprax – expect 2-3% EPS hit
Earnings impact could be limited on likely cost savings, lifecycle management
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INR b)/(USD b)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
Avg Val(INRm)/Vol‘000
Free float (%)
LPC IN
449.0
874.7/14.0
2,112/904
3/38/76
946/672
53.4
n
Financial Snapshot (INR billion)
Y/E Mar
2015E 2016E 2017E
Sales
129.5 154.5 182.0
EBITDA
Adj. PAT
Adj. EPS (INR)
EPS Gr. (%)
BV/Sh. (INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (x)
36.3
24.0
53.6
38.3
30.1
41.7
36.4
9.7
46.8
29.9
66.7
24.5
28.9
40.5
29.2
7.5
56.4
36.9
82.2
23.3
27.8
38.9
23.7
5.9
n
n
n
Aurobindo Pharma (ARBP) received USFDA approval to launch the generic version
of Lupin’s (LPC) brand Suprax (100mg/5ml; 200mg/5ml suspension), implying
maiden generic competition for LPC’s flagship brand in the US (~90% of US
branded sales).
Suprax suspension accounts for ~2% of overall revenue and 4-5% of profit for LPC,
substantially reduced over the last five years due to effective life cycle
management (launch of other dosage forms etc).
We believe the net earnings hit to LPC’s FY16E/17E EPS would be limited to 2-3%
due to (a) likely retention of market share through authorized generic and (b)
potential cost savings on rationalization of field force (120 currently). We do not
revise the EPS estimates pending clarity on company’s strategy.
Strong earnings trajectory will aid valuation, while potential M&A could be a
medium term catalyst. Reiterate Buy.
ARBP to launch generic version of Suprax (suspension form)
Suprax (suspension) accounts for 65% of LPC’s US brand sales (~USD55m) and
garnered 75%+ of prescription (TRx) share of Suprax franchise. Launch of new
dosage forms like chewables, capsules, tablets etc have reduced the share of
suspension form considerably over the last four years. We expect limited
competition (apart from ARBP) in this product in other forms to help LPC
effectively manage the product lifecycle and retain some value in the product.
201.6 259.4 331.9
Shareholding Pattern (%)
As on
Promoter
DII
FII
Others
Dec-14 Sep-14 Dec-13
46.7
10.7
31.8
10.8
46.7
11.0
31.8
10.6
46.8
11.3
31.9
10.0
Cost savings, authorized generic strategy could limit earnings hit
We expect a potential hit of 2-3% on LPC’s annualized EPS, much lower than
the apparent impact of Suprax suspension generic launch. This is likely as LPC
can introduce an authorized generic player to compete with ARBP and retain
large part of TRx share (as in the case of Antara). There exists scope for cost
savings through scale-down of field force in US branded business from ~120
currently, as majority of them are focused on pediatrics (Suprax). We believe
this event would also provide flexibility to LPC to add specialist field force
based on the segments it intends to focus on (respiratory, dermatology etc).
Notes:
FII incl. depository receipts
Stock Performance (1-year)
Lupin
Sensex - Rebased
US generic pipeline could surprise, restricting earnings downgrades
Over the next four to six quarters, LPC is likely to see accelerated pace of US
launches (nine so far in FY15) from its deep US pipeline of 95 ANDAs pending
approval (203 ANDAs filed). Potential near-term launches like gNexium,
gWelchol can surprise positively, thus compensating for Suprax loss.
2,200
1,850
1,500
1,150
800
Strong EPS acceleration to aid valuation multiples
We expect the premium valuations to sustain (29.2x FY16E and 23.7x FY17E on
the back of (a) 24% EPS CAGR, (b) high return ratio (RoE) and (c) strong
balance sheet. Potential M&A in US brands/RoW market could be a catalyst.
Arvind Bothra
(Arvind.Bothra@MotilalOswal.com); +91 22 3982 5584
Amey Chalke
(Amey.Chalke@MotilalOswal.com); +91 22 3982 5423
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on
www.motilaloswal.com/Institutional-Equities,
Bloomberg, Thomson Reuters, Factset and S&P Capital.