Retain ‘buy’ on Lupin, target price of Rs 1,017 – Nomura

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Published: February 26, 2019 2:16:03 AM

The annualised revenue contribution from new launches over the past 12 months at USD60mn was lower than our estimate of ~USD100mn.

The company’s “carpet bombing” strategy to expand into multiple product segments have yielded limited results.

US revenues for LPC have been lower than our estimates. The intensity of price erosion has been higher than expected. In addition, the contribution from new launches has disappointed so far. The annualised revenue contribution from new launches over the past 12 months at USD60mn was lower than our estimate of ~USD100mn.

We lower our expectation from new launches and alsofactor in a delay in warning letter resolution. The company’s “carpet bombing” strategy to expand into multiple product segments have yielded limited results. We, however, believe that the company has made perceptible progress on inhalers and, to an extent, on biosimilars, which is yet to contribute to the financials.

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We have reduced our FY19/20F EPS estimates by 49%/34%, respectively. We arrive at our target price of Rs 1,017, based on 22x FY21F EPS of INR46.2. Our SOTP-based valuation suggests a target price range of INR 875-1,173/sh, which implies a valuation multiple of 19-25x FY21F. Our valuation multiple is at the midpoint of this range and is in line with the current trading multiple.

We think market expectations currently from inhalers, biosimilars and cost control initiatives are low, which could be a source of positive surprise. We maintain our ‘buy’ rating.

We believe the key catalysts are positive news flow on product approvals, particularly with respect to complex products, visibility on cost-control initiatives and stability in earnings.In terms of P/E, the stock is trading in line with peers on FY21F estimates.

However, on EV/EBITDA, it is trading at 18% discount to peers. From being focussed in select segments, Lupin decided to expand its presence significantly.

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