Buy Lupin shares as growth trend continues: Espirito Santo

Mumbai | Updated: May 9 2014, 16:57pm hrs
LupinDrug major Lupin has posted 35.5 pct rise in consolidated net profit at Rs 553 crore for the fourth quarter ended March 31.
We reiterate buy rating on Lupin Lab driven by all-round performance and upgrade our fair valuation to Rs 1,150 (from Rs 1,010 earlier) after increasing our EPS estimates for FY15 by 3% as well as changes to FY16 margin estimates and rolling over our valuation to May 2015 versus January 2015 earlier. We value Lupin using our standard three-stage DCF model with a five-year forecasts, explicitly modelling for exclusive and semi-exclusive product launches.

We maintain our FY15 revenue estimates and upgrade our FY15 ebitda estimates by 10%, as we expect a bigger impact on margins due to improvement in core profitability as well as new launches. Consequently, our net income forecasts increase by 3% with ebitda increase slightly offset by higher interest expenses and tax charges.

Lupins reported 17% y-o-y revenue growth, backed by a strong growth in the US generics ($59 million y-o-y and $32 million q-o-q), Japan (17% y-o-y), South Africa (18%), the EU (20%) and RoW (37%), while India (2%) was affected by the high base in the previous year. However, gross margin (354 bps y-o-y and 40bps q-o-q) slightly exceeded our expectations due to continued momentum in US launches. Ebitda margins were at 28.1% (-40 bps q-o-q adjusted), affected by lumpy SG&A costs.

US generics was the star performer for Lupin following the wave of recent product launches, particularly Trizivir, Trilipix and Cymbalta (Dec 2013) as well as Zymaxid (Oct 2013) and a strong Niaspan launch (Mar 2014).

- Espirito Santo Securities