The stock trades at 20.4x FY16 P/E, a 20% discount to Sun, but at a premium to peers like Cipla and Dr Reddys, which we believe is warranted given its superior track record in capital allocation and excellent execution record. We value Lupin using our standard three-stage DCF model with five-year forecasts, explicitly modelling for exclusive/semi-exclusive product launches, using aggressive fade assumptions for revenue growth and margins in the consolidation and maturity phase.
Lupin is gradually evolving its US strategy and is enhancing internal efforts to launch the next wave of technologies, particularly nasals (six filings in FY2015), inhalers (filings from FY2017), C-II products (filings from FY2016), topicals (ongoing) and LA injectables (filings from FY2017) while prudently allocating capital to biosimilars in the long term.
Lupin reported 35% y-o-y revenue growth in Q1FY15, backed by strong performances from US generics (up $82 million y-o-y and up $21 million q-o-q), Japan (up 17% y-o-y), South Africa (up 6% y-o-y) and India (up 29% y-o-y) though EU (down 25% y-o-y) and RoW (up 4% y-o-y) disappointed.
Kotak Institutional Equities