ICICI Securities: Maintain ‘hold’ on Lupin, revised target price Rs 732

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Published: September 21, 2019 3:11:44 AM

Valuations and risks: We cut our EPS estimates by 3-4% and maintain our ‘hold’ rating on the stock with a revised target price of Rs 732/share based on 20x FY21E EPS (earlier: Rs 758).

ICICI, Lupin, market, market news, USFDA, ProAir, EBITDA, Lupin share, Lupin ltdMandideep was inspected in Dec’18 and a total of 22 observations were issued across three units

Lupin has announced that the USFDA has issued a warning letter for its Mandideep (unit-I) facility in Madhya Pradesh. This plant manufactures cephalosporin API and formulations. The warning letter follows an inspection of the plant in Dec’18 and its classification as OAI (official action indicated) in Mar’19. Further, Lupin has recently received CRL (complete response letter) for ProAir, which could delay the launch further to Q2FY21.

Mandideep was inspected in Dec’18 and a total of 22 observations were issued across three units. Later, Unit-I was classified as OAI and has now received the warning letter. We expect it to take more than a year for the issue to get resolved considering the history of warning letter resolutions.

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ProAir approval likely to be further delayed: Lupin has received CRL for ProAir, which may delay the approval further to Q2FY21 vs earlier expectation of Q4FY20. The USFDA has not approved any generic of this inhalation product and there are two more companies working on it. Lupin is likely to be the first generic company to get approval; however, continual delay would impact the opportunity value. We reduce our revenue estimate for this product to US$36mn in FY22E vs our earlier expectation of the same happening in FY21.

Outlook: We expect revenue/ EBITDA/ PAT CAGRs of 8.9/12.9/32.8% respectively over FY19-FY22E. Strong earnings growth is expected to be driven by 200bps EBITDA margin expansion with improving revenue mix (higher US sales from limited-competition products) and cost reduction measures via R&D rationalisation.

Valuations and risks: We cut our EPS estimates by 3-4% and maintain our ‘hold’ rating on the stock with a revised target price of Rs 732/share based on 20x FY21E EPS (earlier: Rs 758).

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