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.
Lupin’s 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