‘Buy’ Lupin with a target price of R2,550 a share. We value Lupin at 27x March 2017e forward earnings, at a premium to the valuation band (21-23x) for the sector. We believe this is warranted, given Lupin’s consistent delivery (in terms of business mix, return ratios and execution) and superior preparedness to target longer-term growth.
The stock stands out among peers, given a healthy geographic mix (80%-plus sales from India, the US and Japan), differentiated products and robust financial metrics. It has made good progress in efforts to move up the value chain in terms of product (from APIs to formulations) and markets (from less regulated to regulated markets), and we believe it is now entering a high- growth phase, with multiple drivers: 1) Big product rollout in the US, including niche/PIV opportunities; 2) Growth in emerging markets (including India) and Japan; and 3) margin improvement by back-ending sourcing to India from Japan, and rising US sales.
Robust growth in recurring EPS (30% CAGR over FY15-18e) and healthy capital efficiency support our positive view.
Lupin’s robust US pipeline, regulatory breathing space and limited EM exposure provides high leverage to faster FDA approvals (16 in 5m FY16 versus 12 in FY15), in our view.