Lupin: Buy

The prospect of strong growth in the US, a strong footing in the domestic market, and a growing presence in the Japanese market make a case for investing in the stock of Lupin.

The recent market correction has also rendered its valuations attractive. At current market price of Rs 392, the stock trades at about 19 times its likely FY12 per share earnings.

This seems reasonable given the potential gains from the likely launch of AllerNaze and oral contraceptives in the US in the coming year.

Lupin has a strong presence in the US and enjoys top market share in 13 of the 29 generics it markets there. It is also the fifth largest generic player in terms of prescriptions (IMS Health).

In the coming year, Lupin plans to make about eight generic launches in the US and about three-four launches in the high-margin and low-competition oral contraceptives segment (cumulative brand size of $300-400 million).

The company has already made more than 20 filings in the oral contraceptives segment. Its cumulative filings now stand at 137, of which 90 await approval.

While a high base and lower channel inventories impacted the company's branded sales (US) in the third quarter – this trend could continue in the fourth quarter too – the bulk of its US opportunity lies in the one-off opportunities (generic Fortamet, Cipro BD and Geodon) and the likely launch of generic OCs and AllerNaze. Lupin has also increased its sales force strength in the US to 160 now.

The ongoing crisis in Japan also presents Lupin an opportunity to grow its generics presence there. While the company may have to take price cuts, supply of low-cost active ingredients from India and higher volumes may help in maintaining margins.

Through its subsidiary, Kyowa Pharma, which is among the top 10 generics players there, Lupin plans to introduce 10 new products in different therapeutic areas. It expects revenues from the Japanese market to grow by 20-25 per cent in the next fiscal.

Strengthening presence in Japan would also help Lupin in the long run as it is a growing market for generics too. In a recently signed trade agreement between the two countries, the Japanese government had agreed to treat Indian Pharma companies on par with the domestic companies.

Aside of these, Lupin has a growing presence in emerging markets and Europe. A strong presence in the domestic formulation segment – driven by entry into new therapeutic areas, product launches, addition of field force and penetration in tier II cities and villages – too adds to its growth prospects.