20140507 - Lupin - Q4FY14

INDIA
LPC IN
Price (at 09:10, 07 May 2014 GMT)
Valuation
Outperform
Rs1,002.15
Rs
1,100.00
Lupin
Another quarter; another beat
Event
- PER
12-month target
Rs 1,100.00
Upside/Downside
%
+9.8
12-month TSR
%
+10.5
Volatility Index
Low
GICS sector
Pharmaceuticals, Biotechnology & Life
Sciences
Market cap
Rsm
449,398
Market cap
US$m
7,465
Free float
%
52
30-day avg turnover
US$m
7.6
Number shares on issue
m
448.4
Investment fundamentals
Year end 31 Mar
Revenue
EBITDA
EBITDA growth
Adjusted profit
EPS adj
EPS adj growth
PER adj
Total DPS
Total div yield
ROA
ROE
EV/EBITDA
Net debt/equity
P/BV
2013A 2014E 2015E 2016E
bn
bn
%
bn
Rs
%
x
Rs
%
%
%
x
%
x
96.4
22.7
57.1
13.1
29.26
41.9
34.2
4.00
0.4
23.2
28.5
19.7
13.9
8.6
112.9
30.0
32.3
18.4
40.81
39.5
24.6
6.00
0.6
28.9
30.3
14.9
-6.0
6.5
131.1
35.4
17.7
22.5
50.01
22.6
20.0
7.50
0.7
28.7
28.5
12.7
-15.2
5.1
152.3
41.8
18.4
27.0
59.95
19.9
16.7
8.99
0.9
27.9
27.0
10.7
-23.8
4.0
LPC IN rel BSE Sensex performance, &
rec history
 Lupin (LPC) reported 4Q FY14 results, with revenue of Rs31.2bn (up
21%YoY), in line with our estimates. However, EBITDA margin @ 28.1% and
PAT of Rs5.5bn (up 36% YoY) was above our estimates due to better
revenue mix (US sales increased by 18% YoY in US$ terms).
 Lower contribution of branded sales in US has been more than compensated
by acceleration in US generic sales, which provides comfort around
sustainability of margins in our view. We upgrade LPC to Outperform from
Neutral with an increased target price of Rs1100 (Rs985 earlier).
Impact
 US business – strong momentum (~44% of total revenue): LPC posted
sales of US$241m in the US for 4Q (up 18%YoY and 12% QoQ), ahead of
our estimates. Our upwardly revised FY15 US sales estimate of US$ 940m is
more than explained by annualizing 4Q FY14 sales. The generic business
accounted for 92% of US sales (up 36% YoY), driven by niche opportunities
like Niaspan, Zymaxid, Cymbalta and Trizivir. Execution has been strong, with
LPC having a top 3 market share in 49 of the current product portfolio of 72
products. Ongoing R&D investments in Topicals, Inhalation, Biogenerics and
complex injectables along with a pipeline of >90 pending ANDA’s provide
comfort around medium-term growth. The branded business in US continues
to remain under pressure (sales contribution down to ~8% of US sales).
 Domestic biz (~22% of total revenue): Domestic sales grew by 2% YoY in
4Q due to the impact of the pricing policy and trade-related issues. With
annual impact of the pricing policy now behind us, we expect LPC domestic
sales to accelerate in FY15. IMS shows LPC’s secondary sales growth of
~9.5% in 4Q (vs. 9.2% IPM growth), implying recovery in quarters ahead.
 Japan – biz rebounds (~11% of total revenue): In yen terms, Japan sales
were up 15% YoY in 4Q FY14 (vs. muted growth of 6.2% in 9M FY14), driven
by strong growth in Kyowa (up 17.5%YoY and accounts for 75% of Japanese
sales), partially offset by a mid single-digit in sales growth in I’rom. For FY14,
Japanese business declined by 1% YoY largely due to yen depreciation.
Note: Recommendation timeline - if not a continuous line, then there was no
Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, May 2014
(all figures in INR unless noted)
Earnings and target price revision
 Updated for FY14 P&L actual. We are raising FY15/FY16E EPS estimates to
Rs50/60 (vs. Rs47/56 earlier), driven by higher US sales assumptions, which
should lead to better margins. Accordingly our TP is increased to Rs1100 @
20x 1yr fwd EPS (Sep15E), from Rs985 @ 20x 1yr fwd EPS (June15E).
Price catalyst
Analyst(s)
Abhishek Singhal
+91 22 6720 4086 [email protected]
Kumar Saurabh, CFA
+91 22 6720 4091
[email protected]
7 May 2014
Macquarie Capital Securities India (Pvt)
Ltd
 12-month price target: Rs1,100.00 based on a PER methodology.
 Catalyst: Niche approvals in US market.
Action and recommendation
 Given its execution track record, strong balance sheet, earnings momentum
and defensive characteristics LPC should sustain premium valuation of ~20x
FY15 earnings. Strategic alternatives given the strong balance sheet along
with Niche US pipeline could provide further upside.
Please refer to the important disclosures and analyst certification on inside back cover of this document, or on our
website www.macquarie.com.au/disclosures.
Macquarie Research
Fig 1
Lupin
LPC 4Q FY14 results snapshot
(Rsm except per share data)
4QFY14
4QFY13
YoY(%)
3QFY14
QoQ(%)
Comment
30516
25374
20.3%
29830
2.3%
Driven by strong US sales
690
485
Total Revenue
31205
25858
20.7%
30220
3.3%
Total Revenues
31205
25858
20.7%
30220
3.3%
RM cost
-6179
-4936.9
-6093
Purchase of traded goods
-4238
-3919.8
-3750
613
-181.9
-1366
Cost of materials
-9804
-9038.6
-11209
Gross profit
Margin
21401
70%
16820
66%
Employee cost
-3896
-3308.8
-3787
Manufacturing and other expenses
-8736
-6923.8
-7490
EBITDA
Margin
8769
28.1%
6587
25.5%
Depreciation & Amortization
-743
-1290.2
EBIT
Margin
8026
26%
5297
20%
52
62.2
324
-122
-132.5
-42
7957
5227
-2327
29%
-1079.6
21%
PAT
5630
4146.9
Minority interest
-100
-66.1
5530
4081
Net profit after extraordinary
5530
4080.8
PAT excluding exceptionals and
forex
5530
4081
PAT excluding exceptionals
5530
4080.8
4761
450
447.6
448
12.28
9.12
Net sales /income from operation
Other Operating income
Increase/(decrease) in stock trade
Other income
Interest and Finance Charges
390
27.2%
33.1%
19011
62.9%
7733
25.6%
12.6%
Includes R&D as % of sales of 8%
13.4%
-637
51.5%
7096
23%
13.1%
Exceptional items
Profit before tax
Tax
Tax rate
52.2%
7379
7.8%
-2542
34%
35.8%
4837
16.4%
-76
Share of loss in Associates
PAT after minority interest and share
of loss of associate
35.5%
4761
16.1%
Extraordinary items(post tax)
No of shares outstanding
EPS (diluted)
4761
35.5%
34.7%
4761
10.6
16.1%
15.5%
Source: Company data, Macquarie Research, May 2014
7 May 2014
2
Macquarie Research
Fig 2
Lupin
LPC – segmental breakdown
(Rsm)
Q4FY14
Q4FY13
% change YoY
Q3FY14
% change QoQ
14,699
5,763
3,218
3126
795
20,001
2,915
30,516
11,463
5,659
2,752
2404
660
22,938
2,436
25,374
28.2%
1.8%
16.9%
30.0%
20.5%
-12.8%
19.7%
20.3%
13,567
6,504
3,720
2405
661
20,001
2,973
29,830
8.3%
-11.4%
-13.5%
30.0%
20.3%
0.0%
-2.0%
2.3%
Formulations business
US
India
Japan
ROW (including SA)
Europe
Total formulations business
API
Total revenue
Source: Company data, Macquarie Research, May 2014
Fig 3
LPC Target price of Rs1,100 @ 20x 1 yr fwd EPS (Sep 15E)
1 year fwd EPS (Sep 15E)
Target P/E
55
20
x
Target Price
1100
12 month forward target price
Source: Macquarie Research, May 2014
Fig 4 LPC- Revenue breakdown (FY14)
10%
3%
9%
44%
12%
22%
US
India
Japan
ROW (including SA)
Europe
API
Source: Company data, Macquarie Research, May 2014
7 May 2014
3
Macquarie Research
Lupin
Lupin (LPC IN, Outperform, Target Price: Rs1,100.00)
Quarterly Results
3Q/14A
4Q/14E
1Q/15E
2Q/15E
Revenue
Gross Profit
Cost of Goods Sold
EBITDA
Depreciation
Amortisation of Goodwill
Other Amortisation
EBIT
Net Interest Income
Associates
Exceptionals
Forex Gains / Losses
Other Pre-Tax Income
Pre-Tax Profit
Tax Expense
Net Profit
Minority Interests
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
28,216
18,673
9,543
7,507
652
0
0
6,855
-67
0
0
0
291
7,079
-2,405
4,674
-83
29,345
19,420
9,925
7,807
679
0
0
7,129
-69
0
0
0
303
7,362
-2,502
4,861
-86
31,469
20,959
10,510
8,484
672
0
0
7,812
0
0
0
0
386
8,198
-2,706
5,492
-91
32,780
21,832
10,948
8,838
700
0
0
8,138
0
0
0
0
403
8,540
-2,819
5,721
-94
Reported Earnings
Adjusted Earnings
m
m
4,591
4,591
4,775
4,775
5,402
5,402
EPS (rep)
EPS (adj)
EPS Growth yoy (adj)
%
10.20
10.20
39.5
10.61
10.61
39.5
EBITDA Margin
EBIT Margin
Earnings Split
Revenue Growth
EBIT Growth
%
%
%
%
%
26.6
24.3
25.0
17.1
41.5
Profit and Loss Ratios
2013A
2014E
2015E
2016E
Revenue
Gross Profit
Cost of Goods Sold
EBITDA
Depreciation
Amortisation of Goodwill
Other Amortisation
EBIT
Net Interest Income
Associates
Exceptionals
Forex Gains / Losses
Other Pre-Tax Income
Pre-Tax Profit
Tax Expense
Net Profit
Minority Interests
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
96,413
60,933
35,480
22,700
3,322
0
0
19,378
-410
0
0
0
279
19,246
-5,842
13,404
-263
1,12,866
74,692
38,174
30,028
2,610
0
0
27,418
-267
0
0
0
1,165
28,317
-9,622
18,695
-331
1,31,120
87,327
43,792
35,350
2,800
0
0
32,550
0
0
0
0
1,610
34,160
-11,276
22,884
-378
1,52,350
1,01,467
50,883
41,849
3,000
0
0
38,849
0
0
0
0
1,931
40,780
-13,335
27,445
-467
5,627
5,627
Reported Earnings
Adjusted Earnings
m
m
13,142
13,142
18,364
18,364
22,506
22,506
26,978
26,978
12.00
12.00
22.6
12.50
12.50
22.6
EPS (rep)
EPS (adj)
EPS Growth (adj)
PE (rep)
PE (adj)
%
x
x
29.26
29.26
41.9
21.5
21.5
40.81
40.81
39.5
22.9
22.9
50.01
50.01
22.6
20.0
20.0
59.95
59.95
19.9
16.7
16.7
26.6
24.3
26.0
17.1
41.5
27.0
24.8
24.0
16.2
18.7
27.0
24.8
25.0
16.2
18.7
Total DPS
Total Div Yield
Weighted Average Shares
Period End Shares
%
m
m
4.00
0.6
449
447
6.00
0.6
450
448
7.50
0.7
450
448
8.99
0.9
450
448
2013A
2014E
2015E
2016E
2013A
2014E
2015E
2016E
35,350
-11,276
-5,097
0
-740
18,236
0
-7,867
0
380
-7,487
-3,364
0
0
0
-3,364
41,849
-13,335
-3,996
0
-740
23,778
0
-9,141
0
380
-8,761
-4,032
0
0
0
-4,032
Revenue Growth
EBITDA Growth
EBIT Growth
Gross Profit Margin
EBITDA Margin
EBIT Margin
Net Profit Margin
Payout Ratio
EV/EBITDA
EV/EBIT
%
%
%
%
%
%
%
%
x
x
36.1
57.1
59.2
63.2
23.5
20.1
13.6
13.7
12.3
14.4
17.1
32.3
41.5
66.2
26.6
24.3
16.3
14.7
13.9
15.3
16.2
17.7
18.7
66.6
27.0
24.8
17.2
15.0
12.7
13.8
16.2
18.4
19.4
66.6
27.5
25.5
17.7
15.0
10.7
11.5
Balance Sheet Ratios
ROE
ROA
ROIC
Net Debt/Equity
Interest Cover
Price/Book
Book Value per Share
%
%
%
%
x
x
28.5
23.2
26.1
13.9
47.2
5.4
116.4
30.3
28.9
30.2
-6.0
102.9
6.1
154.6
28.5
28.7
33.1
-15.2
nmf
5.1
197.3
27.0
27.9
34.4
-23.8
nmf
4.0
248.4
Profit & Loss
Cashflow Analysis
EBITDA
Tax Paid
Chgs in Working Cap
Net Interest Paid
Other
Operating Cashflow
Acquisitions
Capex
Asset Sales
Other
Investing Cashflow
Dividend (Ordinary)
Equity Raised
Debt Movements
Other
Financing Cashflow
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
22,700
-5,439
-5,494
-410
-740
10,617
0
-5,412
0
380
-5,032
-1,689
-128
4,645
423
3,251
30,028
-9,622
-2,806
-267
-740
16,593
0
-6,772
0
380
-6,392
-2,690
0
0
0
-2,690
Net Chg in Cash/Debt
m
8,835
7,511
7,385
10,984
Free Cashflow
m
5,204
9,821
10,369
14,637
2013A
2014E
2015E
2016E
4,349
21,870
19,489
21
27,241
5,073
10,392
88,434
15,431
9,174
2,471
0
8,722
35,798
52,042
595
0
52,636
88,434
9,739
24,641
21,295
21
29,224
6,579
9,854
1,01,352
15,941
4,024
1,510
0
9,892
31,367
69,316
669
0
69,985
1,01,352
19,095
28,470
25,371
21
34,291
6,579
11,975
1,25,802
20,088
4,024
1,510
0
10,675
36,296
88,458
1,047
0
89,505
1,25,802
32,370
31,808
28,345
21
40,432
6,579
12,849
1,52,403
22,443
4,024
1,510
0
11,509
39,485
1,11,404
1,514
0
1,12,918
1,52,403
Balance Sheet
Cash
Receivables
Inventories
Investments
Fixed Assets
Intangibles
Other Assets
Total Assets
Payables
Short Term Debt
Long Term Debt
Provisions
Other Liabilities
Total Liabilities
Shareholders' Funds
Minority Interests
Other
Total S/H Equity
Total Liab & S/H Funds
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
m
All figures in INR unless noted.
Source: Company data, Macquarie Research, May 2014
7 May 2014
4
Macquarie Research
Important disclosures:
Lupin
Recommendation definitions
Volatility index definition*
Financial definitions
Macquarie - Australia/New Zealand
Outperform – return >3% in excess of benchmark return
Neutral – return within 3% of benchmark return
Underperform – return >3% below benchmark return
This is calculated from the volatility of historical
price movements.
All "Adjusted" data items have had the following
adjustments made:
Added back: goodwill amortisation, provision for
catastrophe reserves, IFRS derivatives & hedging,
IFRS impairments & IFRS interest expense
Excluded: non recurring items, asset revals, property
revals, appraisal value uplift, preference dividends &
minority interests
Very high–highest risk – Stock should be
expected to move up or down 60–100% in a year
– investors should be aware this stock is highly
speculative.
Benchmark return is determined by long term nominal
GDP growth plus 12 month forward market dividend
yield
High – stock should be expected to move up or
down at least 40–60% in a year – investors should
be aware this stock could be speculative.
Macquarie – Asia/Europe
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected return <-10%
Medium – stock should be expected to move up
or down at least 30–40% in a year.
Macquarie First South - South Africa
Outperform – expected return >+10%
Neutral – expected return from -10% to +10%
Underperform – expected return <-10%
Low–medium – stock should be expected to
move up or down at least 25–30% in a year.
Macquarie - Canada
Outperform – return >5% in excess of benchmark return
Neutral – return within 5% of benchmark return
Underperform – return >5% below benchmark return
Low – stock should be expected to move up or
down at least 15–25% in a year.
* Applicable to Asia/Australian/NZ/Canada stocks
only
Macquarie - USA
Outperform (Buy) – return >5% in excess of Russell
3000 index return
Neutral (Hold) – return within 5% of Russell 3000 index
return
Underperform (Sell)– return >5% below Russell 3000
index return
EPS = adjusted net profit / efpowa*
ROA = adjusted ebit / average total assets
ROA Banks/Insurance = adjusted net profit /average
total assets
ROE = adjusted net profit / average shareholders funds
Gross cashflow = adjusted net profit + depreciation
*equivalent fully paid ordinary weighted average
number of shares
All Reported numbers for Australian/NZ listed stocks
are modelled under IFRS (International Financial
Reporting Standards).
Recommendations – 12 months
Note: Quant recommendations may differ from
Fundamental Analyst recommendations
Recommendation proportions – For quarter ending 31 March 2014
Outperform
Neutral
Underperform
AU/NZ
51.32%
34.54%
14.14%
Asia
60.23%
24.97%
14.80%
RSA
41.25%
40.00%
18.75%
USA
40.21%
53.19%
6.60%
CA
58.52%
35.56%
5.92%
EUR
48.74% (for US coverage by MCUSA, 8.21% of stocks followed are investment banking clients)
32.77% (for US coverage by MCUSA, 6.67% of stocks followed are investment banking clients)
18.49% (for US coverage by MCUSA, 0.00% of stocks followed are investment banking clients)
LPC IN vs BSE Sensex, & rec history
(all figures in INR currency unless noted)
Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period.
Source: FactSet, Macquarie Research, May 2014
12-month target price methodology
LPC IN: Rs1,100.00 based on a PER methodology
Company-specific disclosures:
Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures.
Target price risk disclosures:
LPC IN: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include
geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global
economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates,
foreign exchange rates and input prices. From time to time, the company will enter into transactions, including transactions in derivative instruments, to
manage certain of these exposures.
Analyst certification:
The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The
analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd ABN 94
122 169 279 (AFSL No. 318062) (MGL) and its related entities (the Macquarie Group) and has taken reasonable care to achieve and maintain
independence and objectivity in making any recommendations.
General disclaimers:
Macquarie Securities (Australia) Ltd; Macquarie Capital (Europe) Ltd; Macquarie Capital Markets Canada Ltd; Macquarie Capital Markets North America
Ltd; Macquarie Capital (USA) Inc; Macquarie Capital Securities Ltd and its Taiwan branch; Macquarie Capital Securities (Singapore) Pte Ltd;
Macquarie Securities (NZ) Ltd; Macquarie First South Securities (Pty) Limited; Macquarie Capital Securities (India) Pvt Ltd; Macquarie Capital Securities
(Malaysia) Sdn Bhd; Macquarie Securities Korea Limited and Macquarie Securities (Thailand) Ltd are not authorized deposit-taking institutions for the
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7 May 2014
5
Macquarie Research
Lupin
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