Lupin’s US business reported sales in line with our estimates after four successive quarters of misses, helped by flu season and benefits of Fortamet price increase. LPC management expects a strong finish to the year and a stronger FY2017, due to US launches (Glumetza included) and integration of Gavis acquisition. Transmission of price hikes for Glumetza and Fortamet remains critical for FY2017 growth, though we see assumptions of 100% transmission as unrealistic. We cut our FY2016/17E EPS by 4% and 6% respectively.
Lupin’s US business reported sales in line with our estimates after four successive quarters of misses, thanks to better seasonal benefits for cephalosporins portfolio, partial revival in US brands, and importantly benefits of price increase in Fortamet.
Ex-US, Lupin saw strong performance across divisions with South Africa declining by -2% y-o-y (constant currency growth of 17%), India growth at 17%, Europe at 25% y-o-y, and Japan at 9%. A combination of higher other export benefits from MEIS scheme, price hikes in Fortamet and stronger domestic growth helped drive q-o-q gross margins expansion of 240 bps to 68.4%. A 70 bps reduction in R&D costs (11% of sales) helped drive 7.6% EBITDA outperformance compared to our estimates, though adjusting for Rs 600 million other operating income due to some customer contract changes, sales and EBITDA were in line with our estimates.
Higher tax rate due to increase in shipments to the US in the quarter meant that PAT missed our estimates by 17%.
