Lupin Ltd. share price target

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Following a weak 1HFY19, LPC reported a recovery in 2HFY19, ending the year with a ~6% revenue growth, which is likely to accelerate in FY20-21E. The recent launches of gSynthroid/gAndrogel, monetization of the complex generics pipeline (gProair and bEnbrel), supported by ~20 yearly ANDA approvals will drive ~12% revenue CAGR over FY19-21E. Boosted by high margin products, US base business recovery and easing of raw material prices in India, we expect EBITDA margin to expand 100bps annually. With US$ 60mn Solosec revenue expectation, the specialty spend to the tune of US$ 50mn will also be fully absorbed (~2% of sales) in FY21E. Despite being marred by repeated US FDA issues, LPC's visible levers for both revenue and profitability help maintain our positive stance. India franchise, valued at ~Rs 650/sh, continues to protect the downside risk. We maintain a BUY on LPC following in line operational performance in 4QFY19. Our TP is revised at Rs 930/sh (22x FY21E EPS) following a 10% cut in our FY21E EPS to account for higher tax and slower ramp up in Solosec.

Strong margin performance dented by tax: Lupin's revenue was up on 9 % YoY to Rs 44 bn in Q4FY19 lower than ourestimates of Rs 45.3 bn. US market and India market had good growth noswhereas EMEA and LATAM posted dismal performance.

cGMP issues, pricing headwinds in US to the fore Lupin's US business (~38% of revenue) has one of the largest ANDA pipelines comprising 422 filed ANDAs and 157 pending approvals including ~40 FTFs. However, this segment is facing headwinds due to persisting pricing pressure and the recent warning letter for Goa (oral solid) and Indore (oral solid, ophthalmic) formulation plants. The company is looking for branded products and complex generics (biosimilars, injectables) to overcome this issue. We expect sales from the US to grow 11.6% to | 6964...

India's trade deficit widened to US$ 15.3bn in Apr'19 from US$ 10.9bn in Apr'19 as gold (54% YoY) and oil (9%) imports increased. Exports were relatively muted at US$ 26bn (0.6%). Non-oil-non-gold imports continued to moderate as domestic demand remains weak. Capital goods imports contracted. The recent uptick in trade deficit is in-line with backdrop of weak export growth and relatively higher imports as oil and gold prices remain...

Core EBITDA was a marginal 4% beat adjusted for low R&D; spends for the quarter. LPC gave no guidance on sales growth or margins but expects further cost optimisation in FY20 (staff & R&D;). Solosec ramp-up, Levothyroxine, 20 ANDA launches (incl. gProAir, 1 depo injectable in H2) along with India business will drive momentum. Tax rate guidance at 40% was a key negative, driving a 15% cut in FY20 EPS. Hereon, FDA inspection outcome for Goa is...

US/domestic formulation drive revenue growth: Sales increased 9% YoY to INR44b (in-line), led by the US (+10% YoY to USD245m; 39% of sales) and domestic formulation (+9% YoY to INR10.5b) businesses. However, the performance was partly dragged by muted growth in APIs (+3.7% YoY to INR3b) and a decline in...

Lupin managed better revenue in Q3 on the back of upfront payment of $30mn from AbbVie and better traction in US base business. However, profit margin got weakened by adverse revenue mix (higher API and RoW sales), forex loss of Rs1.57bn and one-off provision of Rs3.42bn (Euro 40mn) related to Perindopril litigation. Excluding one-off revenues ( net of tax) and expenses, the adjusted PAT stood at Rs327mn, much below our as well as street consensus estimates. Although, the subsequent quarters should see a better performance on the back of launch of gRanexa (Feb-19; 3-months exclusivity, $600mn market), overall performance in FY19 will remain weaker than expected. Key...

We continue to maintain our BUY rating with a TP of Rs 985 (22x Dec-20E EPS). While 1HFY19 was weak for Lupin, the company reported decent revenue growth in 3Q (up 8% YoY), despite a delayed onset of the flu season in the US. On the margins front, we saw the impact of a lower gross margin and higher specialty spend weigh in on profitability. We anticipate 4Q to be stronger for Lupin, owing to gRanexa launch and increased intensity in the flu season.

Q3FY19 revenues were way higher than I-direct estimates mainly due to one-off licensing income and better-than-expected sales in the US, Japan, RoW and API. Revenues grew 13.3% YoY to | 4505 crore (Idirect estimate: | 3991 crore) mainly due to | 210 crore of NCE Licensing Income on license of MALT1 inhibitors to AbbVie Inc EBITDA margins declined 58 bps YoY to 16.7% but were higher than I-direct estimates of 15% due to licensing income. EBITDA grew 9.5% YoY to | 753.8 crore above I-direct estimate of | 598.6 crore Excluding exceptional item, net profit declined 12.2% YoY to | 194.1...