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Lupin-Kyowa Pharma Acquisition – BUY

October 11, 2007

Lupin is on an acquisition spree. Earlier it acquired Rubamin and now its Kyowa Pharma in Japan. Lupin has acquired 80% stake in Kyowa Pharma, Japan (will increase to 100% soon) at an enterprise value of US$110 mn (1.7x sales and 11.3x EV/EBITDA). Current sales will significantly scale up from US$65 mn to US$100 mn and profits from US$3-4 mn to US$10-12 mn over the next 2-3 years. This would mainly be led by the increased number of product launches from Lupin, higher genricisation of the market and operational and sourcing efficiencies.

Taking this into consideration, the acquisition is a good opportunity for Lupin from a strategic point of view. The stock is trading at 15.9x FY08E and 13.1x FY09E earnings. ASK Securities reiterates a Buy rating on the stock with a target price of Rs 807.

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