Lupin

Investors with a long-term perspective can consider adding the stock of Lupin to their portfolio. Sustained traction in formulation exports in the key markets of the US and Japan, a strong footing in the domestic market, and an attractive pipeline of products make a strong case for investing in this stock. At the current market price of Rs 945, the stock trades at about 14 times its likely FY10 per share earnings.

While this isn’t cheap, Lupin’s consistent performance on the earnings front, helped by its well-timed acquisitions across geographies, does justify premium valuations.

In terms of geographic segments, the company’s US sales are likely to remain healthy helped by its front-end marketing presence and the focus on niche products. What may also help is the recent acquisition of the worldwide marketing rights for the intra-nasal steroid (INS), AllerNase Nasal Spray from Collegium Pharmaceutical, Inc. This appears strategic given the likely fall in revenues from its anti-infective branded product Suprax (contributes to over 10 per cent of its overall revenues), which is expected to go generic by next fiscal year. This deal will also help Lupin leverage on its existing paediatric franchise network. Entry into high-margin oral contraceptive segment may also add to its strength. Lupin’s performance in the domestic market too has been impressive.

It also enjoys an edge over most of its Indian peers in terms of its presence in the Japanese market. Lupin’s presence in the region by way of its earlier acquisition of Kyowa will help it stay ahead of competition. In contrast to most of its peers that are still grappling with large acquisitions, its strategy to gain entry into newer markets (in the EU, Australia and South Africa) through small-size acquisitions has proved to be quite a success.

It has not only helped keep debt in check, but also accorded better control over operations.

For the quarter ended June 2009, Lupin’s consolidated revenues grew a healthy 26 per cent driven by growth in domestic formulations and that in the US and Japan. Growth would have been higher but for the decline in its API (Active Pharmaceutical Ingredients) sales.

Pricing pressure and de-stocking by global majors stunted the segment’s growth. Despite that, Lupin’s earnings registered a 25 per cent growth.

The key risk to prospects arises from the USFDA warning letter which sought clarifications on issues related to its facility at Mandideep (which makes Suprax). Any adverse development on this front would be a risk to our recommendation.

via BL