We initiating coverage on Lupin with BUY rating and a target price of Rs 1,220 (P/E of 26x for FY23E earnings) which implies an upside of 18% from the current levels.

We trim our estimates for FY21/22/23 by 6%/6%/5% to factor slightly higher other expenses and lower other income. Revised TP Rs1120/sh. Lupins 2Q results were operationally in line as good traction in revenues (+9% QoQ), savings in staff cost led to EBITDA margin improvement of ~300bps QoQ to 16.8% (adjusting for forex loss and one off costs). Management commented on continued focus on cost control and operating leverage benefits to kick in from Q4 onwards. US generics business is expected to see increased momentum in 2H with higher contribution of gAlbuterol, gGlumetza (re-launched) and flu drugs. We remain positive on Lupins ability to execute in the US (market share gains in key launches) which will be key to drive margin expansion of ~450bps over FY21-23e.

Lupin's 2QFY21 revenue at Rs38,350mn is up9% QoQ and down 12% YoY and higher than our/consensus estimates by 1.7%/1%. The QoQ growth was led by the US business and growth markets. EBITDA stood at Rs5,812mn, down 20.5% YoY and up 19% QoQ. EBITDA margin (excluding other income) stood at 15% higher by 132bps QoQ and lower by 161bps YoY. QoQ improvement in EBITDA margin was led by lower staff costs but was offset by higher other expenses due to forex losses, higher R&D; spend, higher sales promotion and a one-time cost (Rs100-150mn). The management has guided for a margin expansion with medium term margin expectation of 18%, driven by normalization of other expenses (freight costs coming down) and ramp up in the US with Albuterol and Flu season products helping gross margin. Net profit for...

Lupin (LPC) delivered in-line 2QFY21 results. The EBITDA margin has been on an uptrend since hitting all-time lows in 3QFY20, led by cost rationalization, better-than-industry growth in Domestic Formulations (DF), and improved traction in the US/API segment. Near- to medium-term performance is expected to strengthen further on account of recently launched niche products and better operating leverage. We lower our EPS estimate by 5% for FY21, factoring in a gradual increase in Albuterol Sulfate offtake. We maintain our FY22 estimate and introduce...

India formulation remained muted with 1% YoY decline. We reduce our earnings estimate by 7% as we revise our EBITDAM lower to 16% (earlier 19%) for FY21E on the back of increased operating expense. 2QFY21 earnings were below our estimate even with most of the regions except India witnessed good growth. The disappointment was primarily at EBITDA level due to increase in operating expense of 34% QoQ, which led EBITDAM of 14% v/s our estimate of 20%. LPC guided for 18.5% EBITDAM for...

Q2FY21 revenues and operational performance were in-line with I-direct estimates while profitability was below expectations due to below expected other income and a higher tax outgo. As per the management, FY21 US sales would be largely driven by gLevothyroxine, gProAir ramp-up and 15+ new launches. Domestic branded formulations are expected to remain stable. Structurally, the resolution of warning letter and clearance of official action indicated (OAIs) status on plants could be the near term lever along with progress on margins front. Like other pharma majors, Lupin has also...

Lupin's (LPC) Q2 EBITDA was 5% below estimates.

LPC received approval for gProAir HFA (Albuterol Sulfate) that offers a revenue opportunity of US$140-155m over next 8 quarters beginning from 2QFY21E. The total market size of Albuterol Sulfate Inhalation Aerosol is US$2.9bn of which 44% market share is held by ProAir. While there are 9 companies in Albuterol (including 3 AG, 6 generics), LPC and Perrigo are the only generics in gProAir and plans to launch their generics in Aug CY20. We expect LPC can potentially have 5% Rx share of the Albuterol Sulfate...

Lupin Limited is a multi-national pharmaceutical company based in Mumbai. The company specializes in branded and generic formulations, API's and advanced drug delivery systems in the area of biotechnology. The...

Lower US sales due to seasonality & metformin recall; India affected due to lockdown: Lupin's India sales declined 1.7% YoY (up 7.8% QoQ, 37% of revenue) due to lockdown which primarily affected its acute therapies. North America declined 21.1% YoY (down 23.0% QoQ, 35% of revenue) due to lower sales of seasonal products like oseltamivir, recall of Metformin & lower sales of Azithromycin, apart from COVID impact. EMEA de-grew 4.0% YoY (down 31.5% QoQ, 7% of revenue) while Growth Markets declined 5.8% YoY (down 3.6% QoQ, 8% of revenue). ROW declined 46.0% YoY (down 17.3% QoQ, 1% of revenue). API revenue, however, rose 17.2% YoY (up 24.5% QoQ, 12% % of revenue)....

We reduce our FY21 EPS by 7% to factor Q1 miss but keep FY22 estimates largely intact. We increase our TP to Rs980 based on 22x FY22 EPS (from 21x earlier). Upgrade to Buy. We upgrade Lupin to Buy premised on: a) recovery in US business led by gProAir approval (imminent) and ramp up in Levothyroxine; b) bounce back in India growth (solid franchise, chronic skewed portfolio); c) operating leverage to aid margin expansion of ~500bps over FY20-22e. Management commentary was positive, indicating normalization of US business, continued cost reduction efforts as well as good progress on complex/specialty pipeline. With monetization of key assets, resolution of key facilities and margin levers in place, the business is set to post strong earnings growth of ~50% CAGR over FY20-22e.

Outlook & Valuation: We downgrade our revenue estimates by 1% for FY21E to Rs. 168 Bn on account of downgrade in India and other key markets while we upgrade by 0.4% to Rs. 187 Bn on account of upgrade in key markets.

Lupin's 1QFY21 revenue at Rs35,279mn is down 8.3% QoQ and 20.2% YoY and lower than our/consensus estimates by 6.9%/6%. US sales, which declined by 23% QoQ, led to the underperformance. EBITDA stood at Rs4,881mn, down 43% YoY. EBITDA margin (excl. other income) stood at 14% - higher by 18bps QoQ and lower by 563bps YoY. QoQ improvement in EBITDA margin was led by lower other expenses. This was partially offset by higher COVID related expenses (higher freight costs) and higher employee expenses due to restructuring of the specialty organization in the US. Net profit for the quarter stood at Rs1,069mn and was adversely impacted by higher effective tax rate (60%). US sales to normalize in 3QFY21 We build US$120mn addition to base US sales (US$760mn) by FY22...

1QFY21 revenue and PAT was impacted due to decline of US biz (26% QoQ CC), India formulations (2% YoY) and higher effective tax rate of 60% v/s 25% QoQ. Sequential decline in US (Gx) was led by Metformin (extended release) recall, seasonality effect and normalization of sales as 4QFY20 had stocking benefits. While India formulations were impacted due to lockdown, we continue to remain positive on LPC and believe 1QFY21 was one-off...

Lupin's (LPC) Q1 revenue/EBITDA were 12%/14% below estimates.

R&D; investment dips to 10% of revenue since peak of 13.5% in FY17 Investments in R&D; was largely flattish in FY20 to Rs15.5bn, that is 10% of sales down from 11% in FY19 as part of cost optimization program. We highlight major products/pipeline spend of R&D;: Lupin received approval for Nepexto (biosimilar Enbrel) in Europe...

Outlook & Valuation: We downgrade our revenue estimates by 7.5% for FY21E to Rs 169.6 bn on accountof downgrade across regions while we introduce FY22E revenue estimates atRs 186 bn.

BPCL: Inventory losses sink earnings. ARBP: Strong Q4; upside risk to EPS can support higher multiple. LPC: Lupin/Mylan win approval for biosimilar Enbrel in Europe. TRPC: Difficult Q4; growth recovery a few quarters away