Attractive pipeline of high-margin and low-competition products in the US, strong footing in the domestic market and growing presence in the Japanese market will help Lupin grow at a healthy pace in the coming years. Investors with a long-term perspective can buy the shares.

At the current market price of Rs 478, the stock trades at about 17 times its likely FY13 per share earnings. Valuations, though not cheap, do leave sufficient room for growth in the long term. That the company has reported a healthy growth in the just-ended December 2011 quarter also underscores our recommendation.

Investors nonetheless may do well to accumulate the stock in lots over a period of time and temper their return expectations.

Earnings scorecard

During the December-2011 quarter, Lupin's sales grew by about 22 per cent to Rs 1,792 crore. EBITDA margins expanded by about 0.8 percentage points to 20.5 per cent, helped by better sales mix and favourable forex rates. Profit growth, however, came in lower at 5 per cent to Rs 235 crore, largely due to higher tax outgo (likely to remain) and depreciation.

US on a strong wicket

Lupin's presence in the US will remain its key growth driver. The large pipeline of new generic drugs and its strong basket of products provide it long-term growth visibility. It is, however, its oral contraceptives (OC) portfolio that opens up many a high-growth opportunity.

Complex drugs that are difficult-to-make with limited competition, the management expects OCs to generate about Rs 780 crore by 2013-14. The company has already made 25-30 filings in the OC segment.

In the December ‘11 quarter, it launched three OCs in the US, including the authorised generic for Femcon Fe from Warner Chilcott and plans to launch two more in the fourth quarter. For next year, it plans to launch 10 OCs (including Yaz and Yasmin — over $1 billion market size with limited competition; expects approval to come in next year).

During the quarter, it filed three Abbreviated New Drug Applications (ANDAs) with the US Food and Drug Administration (FDA) taking its cumulative filings to 156. It received approval for seven (total approval count 61).

The seven ANDAs include key products like fenofibrate tablets (generic Tricor) and Lamivudine and Zidovudine tablets (generic Combivir). Its US generics sales at $85 million for the quarter registered 9 per cent year-on-year growth (in constant currency terms); sales were flat on a sequential basis.

But likely ramp up in US launches in the coming year, led by OCs, Tricor (Teva and Ranbaxy launch could get delayed), Combivir (expected in May-12) and Geodon (four players) will help keep its revenue momentum going.

Lupin's US branded division grew by a robust 18 per cent on constant currencies, with growth driven by both Suprax tablets (32 per cent growth) and suspension (21 per cent growth), as well as Antara (8 per cent growth) during the quarter.

Re-aligning the field force has helped the company increase its reach to primary care physicians, and thus mitigate generic threat for Suprax.

On the whole, sales of formulations in US and Europe grew by 20.3 per cent to Rs. 683.2 crore during the quarter (38 per cent of consolidated sales).

India looking good

India remains the main growth driver and a critical focus market for Lupin, driven by entry into new therapeutics segments, field force expansion, increasing penetration in Tier-II cities and villages and new product launches.

During the quarter, the India formulations sales grew by about 30 per cent to Rs 519.8 crore largely spurred by a recovery in anti-infectives, gynaecology and metabolic therapy segments.

Humulin sales — the human insulin that Lupin sells jointly with US drug maker Eli Lilly also helped.

While competition in the domestic segment has been hotting up, that Lupin has managed to grow at higher-than-industry rates lends confidence.

In-licensing deals and new product launches are likely to help the company meet its growth guidance of 20 per cent in the coming year as well.

Japan's untapped potential

Lupin's Japan revenues grew by about 43 per cent year-on-year to Rs 247 crore (13.8 per cent of total revenues). Sales growth was 22 per cent on constant currency terms.

The growth was helped by its latest acquisition in the country — Tokyo-based I'rom Pharmaceuticals last November for an undisclosed amount.

I'rom Pharma's strong presence in the DPC (diagnosis procedure combination) hospital segment (estimated to be $9 billion market) through its line of injectable products would complement Lupin's existing oral solids portfolio in Japan (through Kyowa Pharmaceuticals).

That said, the going will not be as easy for the company, what with competitive pressures set to increase what with the likes of Teva, Sandoz and Daiichi Sankyo (capitalising on the generics strengths of Ranbaxy) present.

Backward integration of active pharmaceutical ingredients and product launches could help Lupin here somewhat.

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