Lupin Ltd. share price target

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.

12 November 2019 LPC has entered into a definitive agreement for the sale of its entire stake in its Japanese subsidiary Kyowa Pharma (Kyowa) to Unison (a private equity fund in Japan) for an EV of ~INR37b. Kyowa delivered sales of ~INR17.8b in FY19 and ~INR9b for 1HFY20. The transaction would generate cash inflow of INR21b post tax. Net debt would reduce by INR32b and net debt-to-equity would come down to 0.08x from 0.32x. While the board of directors has approved the transaction, it is subject to the procedural closing conditions, including approval by LPC shareholders. Japans USD13b generic pharma market (as of 2018) exhibited a CAGR of 9% over CY14-18. Japans government is likely to change the rule to an annual review, which implies a further impact on profitability of the countrys generic business. LPC had entered Japans pharma market with the acquisition of Kyowa in FY08. Kyowas revenue CAGR was ~15% over FY15-19 (INR17.

Core Q2 EBITDA, normalised for licensing income, was a 5% miss at Rs 6bn (flat QoQ).

cGMP issues, pricing headwinds in US to the fore Lupin's US business (~38% of revenue) has one of the largest ANDA pipelines comprising 324 filed ANDAs and 151 pending approvals including ~40 FTFs. However, this segment is facing headwinds due to persisting pricing pressure and the recent warning letters (Goa, Indore and Mandideep) and OAI at Gavis plant. The company is looking for branded products and complex generics (biosimilars and injectables) to overcome this issue. We expect sales from the US to grow ~5% to | 6393 crore in FY19-22E due to...

Revenues and margins lower than expectation: Lupin s revenues increased by 10 percent YoY to Rs 42.9 bn in Q2FY20 lower than our estimates of Rs 45.4

The USFDA's warning letter (WL) on Mandideep plant identified a long list of Change in Estimates | Target | Reco activities to address the operational deficiencies. Besides, LPC has to...

Lupin Limited is a multinational pharmaceutical company based in Mumbai. The company specialises in branded and generic formulations, APIs and advanced drug delivery systems in the area of biotechnology. The company...

Lupin reported revenue growth of 11% YoY to `44,906mn in Q1FY20. Growth was across most of our geographies, led by the U.S. and India.US showed 30% YoY growth while India delivered strong growth at 12% YoY. EBITDA grew by 31% YoY, due to higher gross profit...

Despite delivering strong performance in the US, we were unimpressed by the continued execution issues in getting complex product approvals - bEnbrel in EU and gProAir in US have been elusive so far. At a time when four formulation plants are under OAI or WL, these big-size product approvals have become crucial. Moreover, Solosec ramp up has been slower than expected, keeping margins in check as marketing spend continues to weigh in. Our FY21E numbers do include a ramp up in gLevothyroxine sales and the launch of gProAir and bEnbrel, keeping Rs 34.3 EPS at risk (in case of further delays). However, the branded domestic franchise (valued at ~Rs 650/sh) continues to support the downside. We downgrade LPC to NEUTRAL owing to visible execution woes in the form of (1) slow scale up in Solosec & gLevothyroxine in US, and (2) postponement of bEnbrel approval in EU. 1QFY20s performance beat our estimates led by higher gRanexa contribution. Our revised TP is Rs 760 (22x FY21E EPS) following a 17% cut to our FY21E EPS

Q1 core EBITDA was in line at Rs 6bn, normalised for a temporary drop in SG&A; spends and Ranexa FTF.