Maintain ‘hold’ on Lupin with a target price of Rs 1,630 per share valuing the stock at 22x FY17e EPS of Rs 74. Sharp slowdown in niche products’ approval and price erosion in the base portfolio in the US impacted Q2FY16 growth. Price increase in Fortamet is also uncertain as Actavis, the other player, has not hiked prices and Valeant too is in trouble over price increase in the US.
Lupin’s Q2FY16 revenue was below expectations as US revenue fell 13% to $174 million, India revenue grew mere 9%, South Africa grew just 6% in ZAR terms, and Kyowa and I’rom grew just 2% and 6%, respectively, in JPY terms. This impacted gross margin, which slipped ~350 bps q-o-q. Excluding the high contribution from ‘other operating income’, ebitda margin of 16.6% was the lowest since Q2FY10. Management sees Ebitda margin to improve Q4FY16 onwards on Nexium and Glumetza launch.
Nexium and Glumetza are key launches expected in H2, but the company has pushed ahead the launch timeline of Renvela, Renagel and Welchol (FY17 end/early FY18). Gavis can add $200 million in next two years on account of 40-50 new product launches; Glumetza ($150 million market): FTF with date certain launch (Feb-16), Welchol launch is expected by FY17-end.
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