Lupin’s nilesh gupta, MD and Ramesh Swaminathan, CFO, discussed Lupin’s strategic priorities and outlook last week. Here are key takeaways.

Lupin’s management had implemented cost control and efficiency gain initiatives aimed at reducing costs by Rs 7.5 bn. However full impact of these initiatives was not realised due to declines in product volumes, inventory write-offs, and failure to supply penalties. Some improvement in these inefficiencies are likely in the near term. However, a material improvement in Ebitda margin (high teens to 20%) is likely to be driven by product launches and topline growth.

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Management wants to de-prioritise investment in biosimilars and may look at the specialty segment at some time in the future. This stance on biosimilars surprised us as Lupin has made investments and achieved limited success thus far. Management expects India growth to revive from Q2FY24 onwards and targets growth significantly ahead of the broader market.

LPC has been focused on reducing overhead costs and increasing inefficiencies in several areas, including: lowering plant overheads and reducing idle time at plants; lowering inventory write-offs; stock returns and failure to supply penalties; reducing freight cost by lowering dependence on air freight; and lowering spend on specialty and NCE (new chemical entity) research . Management targets these initiatives to deliver Rs 7.5bn of cost savings. Lupin has been able to achieve 50% of intended cost savings. Inventory write-off and failure to supply remain high, at above Rs 3bn and Rs 1bn, respectively in FY23 on account of production challenges and impact of detection of nitrosamine impurities in various products. There are likely to be some savings in these areas in FY24. Ongoing efforts on costs would result in some improvement in Ebitda margin. Material improvement in Ebitda margin is likely to be driven by topline growth, particularly new product launches.

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Management expects growth in India formulation to revive from 2Q FY24, significantly ahead of the broader market. The growth would be driven by increases in the field force, acquisitions and strength in existing chronic therapy segments.

Lupin is increasing its focus on the respiratory segment, where it now has a large field force and as per management is 80% of the industry leader in the segment.