Lupin Ltd. share price target

Resolution of Goa and Pithampur (Unit-2) holds the key. We upgrade LPC to Buy' (earlier Reduce) with TP of Rs978 (earlier Rs685). We assigned 24x PE (earlier 22x) on FY22E due to better earnings visibility from the US market led by easing of regulatory issues. We increase our EE by 31% for FY21E-22E led by US revenue growth of 10-15% constant currency (earlier 5-7%) and EBITDA margin expansion of 200bps due to savings from...

On the business front, despite the nationwide lockdown, domestic growth is expected to remain more or less stable. Exports growth, barring for one or two months due to congestion in all major ports globally, is also expected to remain strong due to 1) currency benefit, 2) slowdown in competition due to delay in new approvals that will be beneficial for existing players and 3) expected demand continuum across the world despite Covid-19. Some windfall is also expected in some critical productsa case in point is Hydroxychloroquine, a malaria drug that is likely to be repurposed as a prophylaxis for Covid-19 treatment in some cases....

Lupin Limited is a multinational 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 company...

Q3 revenues declined 16% YoY to | 3769.3 crore due to divestment of Japanese business. Excluding Japan, YoY growth was mere 2.7%. Strong growth in domestic braded formulations was largely offset by decline in US generic business. Domestic formulations grew 9% YoY to | 1296.9 crore (Idirect estimate: | 1344.9 crore). US revenues grew 3.9% YoY to | 1376.6 crore (I-direct estimate: | 1412.8 crore). EBITDA margins contracted 532 bps YoY to 11.4% mainly due to higher sales promotional expenses, remedial cost and R&D; spend. EBITDA de-grew 37% YoY to | 430 crore. Exceptional items include impairment of | 1579.8 crore related to certain acquired IPs...

Lupin's Q3 EBIDTA margin came below expectations at 11.4% (down 588bps YoY, down 190bps QoQ) led by higher other exp (remediation cost, higher promotional spend) and R&D cost. Large one offs related to Gavis impairment, Japan divestiture led to reported loss of Rs83.5bn. We resume coverage with a Neutral rating and TP of Rs705/sh based on 20x FY22 EPS. Lupin has an excellent India franchise (35% of revenues, grew at 13% CAGR over last 5 years), however, with 40% of revenues from US, a lot hinges on pipeline execution, outlook for which is contingent on: a) execution of three key assets Levothyroxine (market share ramp up), Solosec (branded product) and approval for gProAir; b) resolution of compliance issues at its US FDA facilities (5 with OAI status including 2 WL). While we factor increased traction in the US and also build margin expansion on back of cost control efforts & operating leverage, valuations at 21x FY22 EPS appear full.

Lupin (LPC) reported a 40% miss on Q3 EBITDA while one-offs dented PAT (incl. US$ 222mn Gavis impairment).

6 February 2020 LPC is focused on building a niche pipeline for the US market and in process to resolve regulatory issues at its manufacturing sites. LPC intends to grow in the branded domestic formulation (DF) segment by (a) introducing new products, and (b) increasing reach. 3QFY20 has been the weakest quarter in terms of margin, impacted by muted US sales and elevated operational expense. We cut our EPS estimate by 7%/11%/5% to factor in delay of (a) potential launches, and (b) realization of benefits due to cost cutting initiatives. We remain positive on LPC based on its healthy ANDA pipeline and improving growth outlook in the branded DF segment. Maintain 3QFY20 revenues were down 4.5% to INR37.7b. US sales were down 3% YoY to USD186m (37% of sales). API sales declined 12% YoY to INR3.2b.

Lupin will not be able to report a strong comeback in US branded business Although Lupin management has guided to achieve sales of USD100-150mn (Rx) in US$600m Bacterial Vaginosis (BV) market in the US (3% CAGR), we expect Solosec to reach peak sales of only US$50-60m (US$3-5mn/quarter currently) and achieve break-even in FY22E. We believe competition from metronidazole due to a) proven track record b) lower price and c) better efficiency (58-100% cure rate) will limit the shift towards Solosec. We expect Metronidazole will continue to be the market leader in Rx, and the preferred...

Divesting Kyowa to pursue profitable avenues of growth: Lupin has entered into an agreement to divest its stake in Kyowa to Unison.

Lupin (LPC) has signed a definitive agreement with financial investor Unison to sell its entire 99.8% stake in Kyowa for an EV of US$ 520mn.