Lupin: BUY

Planned generic drug launches in the US and good growth in the domestic market should help Lupin sustain its recent growth momentum. At the current market price of Rs 870, the stock trades at 19.5 times estimated 2014-15 earnings. The stock has historically traded at 20-21 times its one-year forward earnings. Despite the 42 per cent gain so far this year, the stock has potential to outperform its peers in future as well. Investors with a one-to-two year horizon may accumulate the stock. The US is a critical market for Lupin, accounting for almost 40 per cent of revenues. Of this, generic business accounts for almost 80 per cent.

Revenues from branded products in the US remained sedate during the September quarter due to competition from generics in Lupin’s anti-cholesterol brand Antara and termination of marketing agreement by Forest Labs for the latter’s inhaler holding device.

However, Lupin recently secured approval for marketing lower strength (90mg) dose of Antara. It has also signed a co-marketing deal with the US-based Onset Dermatologics for promotion of the latter’s lotion brand Locoid. This, coupled with a ramp-up in generic business, which has a pipeline of 91 products awaiting approval by the US Food and Drug Administration can compensate for the lower brand sales. The recent launch of generic versions of anxiety drug brand Cymbalta, anti-cholesterol brand Trililpix and anti-HIV drug Trizivir (exclusive marketing rights for six months) will hold Lupin’s US business in good stead over the next few quarters. In the Indian market, Lupin has consistently managed to grow ahead of peers. Despite the weakness in the market, Lupin managed to grow revenues in its home turf by eight per cent in the September quarter. Strong brands in key therapies such as cardiovascular, respiratory and anti-diabetes segments helped Lupin stay ahead of the market. Even as the depreciation of yen against rupee and slack performance by Japanese subsidiary I’rom Pharma may weigh on Lupin’s performance in the Japanese market, strong growth in other emerging markets may mitigate this.

Lupin’s revenues grew 16 per cent in the September quarter compared to a year ago. Better product mix lifted its operating margins 2.3 percentage points to 24.7 per cent. Net profit grew 40 per cent to Rs 406 crore. A weak rupee, against the US dollar, will benefit the company’s revenue and profit growth in the forthcoming quarters, too.