We maintain our ?buy? rating on Lupin Ltd shares and arrive at our target price of Rs 790 based on 19x FY15e EPS of Rs 41.5. We remain positive given potential of earnings upgrades, driven largely by the US opportunities. Our estimates are 5-13% ahead of consensus for FY13 and FY14. The stock trades at 21.8x FY14 and 17.6x FY15e.
Lupin posted yet another strong quarter, with net earnings at Rs 408 crore, 19% ahead of our estimates. The financials include Rs 50 crore of forex losses (M-T-M and cash flow hedging loss) and Rs 73.6 crore of write offs related to Antara. We believe adjusted for these, net earnings for Q4FY13 are at Rs 490 crore.
The growth in India at 43% y-o-y surprised us positively. The trend, accompanied by overall slowdown in the India-branded business, resulted in subdued expectations in the quarter. As per the management, the low base of the last year (on supply constraints) and improving sales force productivity are driving growth. The company estimates the impact of the new pricing policy could range between 3% and 3.5% of the domestic sales.
Ebitda margins at 26% were 143 bps higher than the previous quarter and ahead of our expectations. This is the highest Ebitda margin recorded over the last many quarters. R&D spend at 7.9% of sales was higher than our expectations. The management articulated its aspiration to deliver 25% revenue growth over the next five years with further improvement in margins. There is no specific guidance for FY14.
The US remains the key driver of growth. Growth in the US in the quarter has been as per expectations. The strength in the US was driven by seasonal pick up in Suprax, Tricor sales and higher Cefdinir revenues in the quarter. In Tricor, the company expects Mylan in the near term and competition may remain muted through the rest of FY14.
The company has scope for margin improvement in the Japanese market. During the quarter, rupee growth in Japan was adversely impacted due to depreciation and was 7% lower than our estimates. The company has launched 11 products in Japan in FY13. Lupin has 116 pending ANDAs awaiting approval with brand sales of $54 billion. There are 25 FTFs of which 12 are exclusive products with sale of $1.62 billion.
By Nomura
