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Lupin Labs – Strong Quarter – Outlook

May 6, 2010

Lupin’s Recurring PAT was in line at Rs2.2bn (+39% YoY), driven by Antara & generic Lotrel sales in the US. Sales grew 24% YoY on the back of 18% higher formulation sales in advanced markets. EBITDA margin expanded 173 bps, despite higher R&D spend, on improved product mix (higher branded sales & generic Lotrel).

US formulations (+ 28% YoY) grew on the back of generic Lotrel launch & first full quarter of Antara sales while Japan (+18% YoY) was led by some new launches & maintenance of leadership in Amlodipine & Risperidone. Recent acquisitions in SA & the Philippines also did well but India (+9%) was below trend. It is pertinent to note that the upside from Lotrel (not quantified) is unlikely to sustain at similar levels beyond 1HFY11.

Outlook on Margins – Cumulative margins likely to go up by 110ps over FY11-12E, mainly driven by (1) niche product launches including oral contraceptives, ophthalmology, Para IV (like Lotrel) products in US generics, (2) ramp up in US branded sales from 37% of US sales to 40% by FY12E, (3) higher focus on chronic segments in domestic formulations and (4) increased vertical integration across products.

EPS of Lupin for FY 11 and FY 12.
Kotak Securities – 104 and 127 with target price of 1920
Bofa Merrill – 94 and 123 with target of 2100
Citi – 94 and 109 with target of 1700
IIFL – 86 and 101 with target of 1800

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