3QFY2019 Result Update | Pharmaceutical
February 7, 2019
Lupin
NEUTRAL
Performance Highlights
CMP
`842
Target Price
-
% chg
% chg
Y/E March (`cr)
3QFY2019 2QFY2019
3QFY2018
qoq
yoy
Investment Period
12 months
Net sales
4,168
3,891
7.1
3,900
6.9
Other income
380
291
30.6
104
264.8
Sector
Pharm aceutical
Operating profit
416
490
(15.1)
613
(32.2)
Market Cap (` cr)
38,094
Interest
80
74
8.1
54
47.7
Net debt (` cr)
3,265
Beta
0.9
Net profit/(loss)
(153)
266
222
52 Week High / Low
986/724
Source: Company, Angel Research
Avg . D a ily Vo lu m e
44,931
Face Value (`)
2
For 3QFY2019, sales came in at `4,168cr v/s. `3,900cr in 3QFY2018, a yoy growth
BSE Sensex
36,975
of 6.9%. On operating front, the EBITDA margins came in at 8.6% v/s. 15.7% in
Nifty
11,062
Reuters Code
LUPN.BO
3QFY2018, mainly on the back of lower than expected sales during the quarter &
Bloomberg Code
[email protected]
dip in the gross margins. Thus, the Adj. PAT came in at `188cr v/s. `222cr in
3QFY2018, a yoy de-growth of 15.2%. During the quarter, the company booked
Shareholding Pattern (%)
NCE income of `210.3cr, which posted other income; while it also posted extra-
Prom oters
47.0
ordinary expenses of `342.2cr which lead company to report losses. We are
MF / Banks / Indian Fls
18.4
FII / NRIs / OCBs
28.0
Neutral on the stock.
Indian Public / Others
12.5
Numbers marred with extra-ordinaries: For 3QFY2019, sales came in at `4,168cr
v/s. `3,900cr in 3QFY2018, a yoy growth of 6.9%. Formulation sales (`3,805cr),
Abs . (% )
3m
1 yr
3 yr
Sensex
5.7
8.1
52.2
which grew by 4.8% yoy, aided by a 1.0% dip in the USA (`1,4174cr). Lupin’s India
Lupin
(1.0)
5.0
(53.7)
formulation sales grew by 11.4% yoy to end the period at `1,190cr.On operating
front, the EBITDA margins came in at 8.6% v/s. 15.7% in 3QFY2018, mainly on the
back of lower than expected sales during the quarter & dip in the gross margins.
3-year price chart
On operating front, the EBITDA margins came in at 8.6% v/s. 15.7% in 3QFY2018.
2,000
Thus, the Adj. PAT came in at `188cr v/s. `222cr in 3QFY2018, a yoy de-growth of
15.2%.
1,500
Outlook and valuation: We expect Lupin to post net sales CAGR of 14.4% to
1,000
`23,292cr over FY2018-21E. The earnings would come under pressure, on back of
pressure on the OPM. The stock trades at 25.7x its FY2020E earnings respectively.
500
We recommend a neutral rating on the stock.
0
Key financials (Consolidated)
Y/E March (` cr)
FY2018
FY2019
FY2020E
FY2021E
Net sales
15,560
15,985
19,325
23,292
% chg
(9.1)
2.7
20.9
20.5
Source: Company, Angel Research
Adj. Net profit
1,189
1,019
1,479
1,962
% chg
(53.5)
(14.3)
45.2
32.7
EPS (`)
26.3
19.9
32.7
43.4
EBITDA margin (%)
9.2
14.3
17.0
17.4
P/E (x)
32.0
42.3
25.7
19.4
RoE (%)
8.8
7.3
9.9
11.9
RoCE (%)
1.6
4.3
8.7
11.6
Sarabjit Kour Nangra
P/BV (x)
2.8
2.7
2.4
2.2
+91 22 3935 7600 Ext: 6806
EV/sales (x)
2.9
2.5
2.1
1.7
EV/EBITDA (x)
30.9
17.7
12.1
9.5
[email protected]
Source: Company, Angel Research; Note: CMP as of February 6, 2019
Please refer to important disclosures at the end of this report
1
Lupin | 3QFY2019 Result Update
Exhibit 1: 3QFY2019 - Consolidated performance
3QFY2
Y/E March (` cr)
2QFY2019
% chg (qoq)
3QFY2018
% chg (yoy) 9MFY2019 9MFY2018
% chg (yoy)
019
Net sales
4,168
3,891
7.1
3,900
6.9
12,043
11,581
4.0
Other income
380
291
30.6
104
264.8
594
311
91.1
Total income
4,548
4,182
8.8
4,005
13.6
12,638
11,892
6.3
Gross profit
2,567
2,498
2.8
2,508
2.4
7,605
7,670
(0.8)
Gross margin
61.6
64.2
64.3
63.2
66.2
Operating profit
415.5
489.5
(15.1)
613.1
(32.2)
1,472
2,136
(31.1)
OPM (%)
10.0
12.6
15.7
12.2
18.4
Interest
80
74
8.1
54
47.7
222
146
52.5
Dep. & amortization
280
265
5.4
280
(0.2)
804
813
(1.1)
PBT
436
441
(1.1)
383
13.9
1,040
1,488
(30.1)
Provision for taxation
248
173
43.4
161
54.2
602
452
33.3
Reported net profit
188
268
222
(15.2)
438
1,036
(57.8)
Less : exceptional items
342
-
-
(119)
-
MI & share in associates
(1)
2
1
2
1
PAT after exceptional items
(153)
266
222
317
1,035
(69.4)
EPS (`)
5.9
4.9
7.0
22.9
(69.4)
Source: Company, Angel Research
Indian sales drives growth
Revenue grows mere 6.9% yoy: For 3QFY2019, sales came in at `4,168cr v/s.
`3,900cr in 3QFY2018, a yoy growth of 6.9%. Formulation sales (`3,805cr), which
grew by 4.8% yoy, aided by a 1.0% dip in the USA (`1,4174cr). Lupin’s India
formulation sales grew by 11.4% yoy to end the period at `1,190cr.
Lupin’s USA sales de-grew by 1.0% to `1,417cr during 3QFY2019, contributing
32% to Lupin’s global sales. The Company launched 6 products in the US
market during the quarter, and now has 168 products in the US generics
market. Lupin is now the leader in 68 products marketed in the US generics
market and amongst the top 3 in 120 of its marketed products (market share
by prescriptions, IQVIA December 2018).
Lupin filed 8 ANDA and received 11 approvals from the US FDA during the
quarter. Cumulative ANDA filings with the US FDA stood at 412 as of December
31st, 2018, with the company having received 258 approvals to date. The
Company now has 41 First-to-Files (FTF) filings including 15 exclusive FTF
opportunities. Cumulative DMF filings stands at 194 as of December 31st, 2018.
Lupin’s India formulation sales for 3QFY2019 decreased by 1.1% to `1190.2cr as
compared to `1203.2cr in 2QFY2019 and increased by 11.4% yoy as compared
to `1068.8cr in 3QFY2018. Lupin’s APAC sales for 3QFY2019 increased by 11.9%
to `693.6cr compared to sales of `619.9cr in 2QFY2019 and increased by 2.9%
as compared to `674.2cr in 3QFY2018. Lupin’s LATAM sales increased by 6.7%
to `155.7cr during 3QFY2019 compared to `145.9cr in 2QFY2019 and by 5.2%
from `148.1cr in 3QFY2018.
February 7, 2019
2
Lupin | 3QFY2019 Result Update
Global API sales were `362.4cr during 3QFY2019 as compared to `334.7cr during
2QFY2019 and `268.0cr during 3QFY2018; accounting for 8% of Lupin’s global
sales.
Exhibit 2: Advanced markets - Sales trend
3,500
2,733
3,000
2,564
2,615
2,500
2,314
2,224
2,000
1,500
1,000
500
0
3QFY2018
4QFY2018
1QFY2019
2QFY2019
3QFY2019
Source: Company, Angel Research
Exhibit 3: Domestic Formulation Market
1500
1300
1192
1203
1190
1069
1100
965
900
700
500
300
100
-100
3QFY2018
4QFY2018
1QFY2019
2QFY2019
3QFY2019
Source: Company
OPM at 10%, lower on back of low gross margins: On the OPM front, the EBDITA
margins came in at 10.0% v/s. 15.7% in 3QFY2018, while the gross margins came in
at 61.6% v/s. 64.3% in 3QFY2018. R&D expenses were 9.7% of sales in 3QFY2019
V/s. 9.7% of sales in 3QFY2018. The staff cost during the quarter posted a growth
of 16.6%.
February 7, 2019
3
Lupin | 3QFY2019 Result Update
Exhibit 4: OPM trend
25
20
16.4
15.7
15
12.6
11.8
10
10.1
5
0
3QFY2018
4QFY2018
1QFY2019
2QFY2019
3QFY2019
Source: Company, Angel Research
Net profit marred with extra-ordinaries: Thus, the Adj. PAT came in at `188cr v/s.
`222cr in 3QFY2018, a yoy de-growth of 15.2%. During the quarter, the company
booked NCE income of `210.3cr, which posted other income; while it also posted
extra-ordinary expenses of `342.2cr which lead company to report losses.
Exhibit 5: Net profit trends
950
850
750
662
633
650
550
455
450
380.2
358
350
250
150
50
2QFY2017
3QFY2017
4QFY2017
1QFY2018
2QFY2018
Source: Company, Angel Research
Conference call takeaways
Company expects USFDA resolution of warning letter at its Pithampur/Goa
facility in 1HFY2020.
On Mandideep facility 483s, company has responded to certain observations,
and by March 2019, most of the observations will be addressed.
Company guided for capex of `600-700cr for FY2020.
Domestic field force strength was about 6900 at the end of 3QFY2019.
Capital Expenditure for the quarter was `143.3cr
February 7, 2019
4
Lupin | 3QFY2019 Result Update
Recommendation rationale
US market - the key driver: The high-margin branded generic business has
been the key differentiator for Lupin in the Indian pharmaceuticals space. On
the generic front, Lupin is currently the fifth largest generic player in the US,
with ~5.3% market share in prescription. Lupin is now the market leader in 68
products marketed in the US generics market and is amongst the top 3 by
market share in 120 products. Currently, the company’s cumulative filings stand
at 412, of which 258 have been approved, with 15 exclusive FTFs. While the
company has received warning letter its existing business will not be impacted.
We expect the region to post a dip of 19.1% over FY2018-20E, on back of lack
of visibility on new product launches.
Domestic formulations on a strong footing: Lupin continues to make strides
in the Indian market. Currently ranked No 5, it is the fastest growing company
among the top five companies in the domestic formulation space, registering
a strong CAGR of 20% over the last few years. Lupin has a strong field force of
~6,900MRs (as of 3QFY2019). We expect the domestic formulation market to
grow at a CAGR of 12.5% over FY2018-21E.
Valuation
We expect Lupin to post a net sales CAGR of 14.4% to `23,292cr and earnings
growth of 18.2% to `43.4/share over FY2018-21E. Currently, the stock is trading at
25.7x its FY2020E earnings. The stock has corrected a lot in last three years, in
absolute terms. However in spite of the same the fundamentals of the company
have not improved much. The company’s US business is stabilized a bit and should
see some recovery in FY2020-21E, However inspite of the same we are cautious on
the operating performance and hence at such valuation’s would adopt a cautious
stance and unless the performance shows signs of significant improvement. We
recommend a Neutral rating on the stock.
Company Background
Lupin, established in 1968, is primarily engaged in the manufacture and global
distribution of active pharmaceutical ingredients (APIs) and finished dosages. Over
the years, the company forayed into the US markets through a differentiated export
strategy of tapping branded generics and consequently gaining a large share of
the US prescription market. Further, to expand its footprint in the global markets,
Lupin has prudently adopted the inorganic growth route. In-line with this, over the
last two years, the company made small acquisitions across geographies,
prominent among these being the acquisition of Kyowa in the growing Japanese
market. In the US, the company has acquired privately held Gavis Pharmaceuticals
LLC and Novel Laboratories Inc. The acquisitions have enhanced Lupin’s scale in the
US generic market and have broadened its pipeline in dermatology, controlled
substance products and other high-value and niche generics.
February 7, 2019
5
Lupin | 3QFY2019 Result Update
Profit & Loss Statement (Consolidated)
Y/E March (` cr)
FY2016 FY2017 FY2018 FY2019E FY2020E FY2021E
Gross sales
13,797
17,224
15,653
16,799
18,704
23,432
Less: Excise duty
96
104
94
101
112
140
Net sales
13,702
17,120
15,560
15,985
19,325
23,292
Other operating income
507
375
244
244
244
244
Total operating income
14,208
17,494
15,804
16,229
19,570
23,536
% chg
11.3
23.1
-9.7
2.7
20.6
20.3
Total expenditure
10,455
13,001
14,121
13,701
16,043
19,237
Net raw materials
4,309
5,001
5,274
6,026
6,803
8,129
Other mfg costs
68.5%
70.8%
66.1%
62.3%
64.8%
65.1%
Personnel
1,047
1,308
1,189
1,221
1,477
1,780
Other
2,937
3,842
3,863
3,021
3,653
4,402
EBITDA
3,247
4,119
1,439
2,284
3,282
4,056
% chg
(5.9)
26.9
-65.1
58.7
43.7
23.6
(% of Net Sales)
23.7
24.1
9.2
14.3
17.0
17.4
Dep. & Amortization
464
912
1,086
1,400
1,501
1,620
EBIT
2,783
3,206
353
884
1,781
2,436
% chg
(7.7)
15.2
-89.0
150.6
101.4
36.7
(% of Net Sales)
20.3
18.7
2.3
5.5
9.2
10.5
Interest & other charges
45
153
204
112
94
77
Other Income
188
107
154
350
120
120
(% of PBT)
5
3
28
26
6
4
Share in profit of asso.
Recurring PBT
3,433
3,535
547
1,367
2,052
2,724
% chg
0.5
3.0
(84.5)
150.0
50.1
32.7
Extraordinary exp./(Inc.)
-
-
(929.4)
118.6
-
-
PBT (reported)
3,433
3,535
547
1,248
2,052
2,724
Tax
1,154
979
288
350
575
763
(% of PBT)
33.6
27.7
52.8
28.0
28.0
28.0
PAT (reported)
2,279
2,556
258
899
1,478
1,961
Add: Share of earnings of asso.
-
-
-
-
-
-
Less: Minority interest (MI)
9
(1)
(1)
(1)
(1)
(1)
Prior period items
-
-
-
-
-
-
PAT after MI (reported)
2,271
2,557
259
900
1,479
1,962
ADJ. PAT
2,271
2,557
1,189
1,019
1,479
1,962
% chg
(5.5)
12.6
(53.5)
(14.3)
45.2
32.7
(% of Net Sales)
16.6
14.9
1.7
5.6
7.7
8.4
Basic EPS (`)
50.5
56.9
26.3
19.9
32.7
43.4
Fully Diluted EPS (`)
50.5
56.9
26.3
19.9
32.7
43.4
% chg
(5.5)
12.6
(53.8)
(24.3)
64.3
32.7
February 7, 2019
6
Lupin | 3QFY2019 Result Update
Balance Sheet (Consolidated)
Y/E March
FY2016
FY2017
FY2018
FY2019E
FY2020E
FY2021E
SOURCES OF FUNDS
Equity share capital
90
90
90
90
90
90
Reserves & surplus
11,073
13,407
13,487
14,218
15,529
17,323
Shareholders funds
11,163
13,497
13,577
14,309
15,619
17,413
Minority interest
32
35
40
39
38
37
Total loans
7,178
7,952
7,143
6,000
5,000
4,000
Other Long-Term
478
76
526
-
-
-
Liabilities
Long-Term Provisions
190
836
357
357
357
357
Deferred tax liability
(9)
(113)
(431)
(431)
(431)
(431)
Total liabilities
19,031
22,283
21,212
20,274
20,583
21,375
APPLICATION OF
FUNDS
Gross block
14,100
10,085
11,411
12,111
13,111
14,111
Less: Acc. Depreciation
2,827
3,739
4,825
6,224
7,725
9,345
Net block
6,451
8,723
7,914
5,887
5,386
4,767
Capital work-in-progress
2,702
2,133
2,598
2,598
2,598
2,598
Goodwill
2,265
2,310
2,448
2,448
2,448
2,448
Investments
16
2,136
262
2,250
1,728
1,212
Long-Term Loans and
968
957
392
1,129
1,365
1,645
Adv.
Current assets
9,885
9,840
11,975
10,224
12,210
14,916
Cash
822
699
1,408
1,689
1,892
2,480
Loans & advances
737
912
103
851
1,029
1,240
Other
8,326
8,229
10,464
7,683
9,289
11,196
Current liabilities
3,258
3,816
4,377
4,263
5,154
6,212
Net current assets
6,628
6,024
7,597
5,961
7,057
8,705
Mis. Exp. not written off
-
-
-
-
-
Total assets
19,031
22,283
21,212
20,274
20,583
21,375
February 7, 2019
7
Lupin | 3QFY2019 Result Update
Cash Flow Statement (Consolidated)
Y/E March (` cr)
FY2016 FY2017 FY2018 FY2019E FY2020E FY2021E
Profit before tax
3,433
3,535
547
1,248
2,052
2,724
Depreciation
464
912
1,086
1,400
1,501
1,620
(Inc)/Dec in working capital
(4,989)
492
(300)
1,181
(1,129)
(1,340)
Direct taxes paid
(1,154)
(979)
(288)
(350)
(575)
(763)
Cash Flow from
(2,246)
3,961
1,044
3,479
1,850
2,240
Operations
(Inc.)/Dec.in Fixed Assets
(11,201)
4,585
(1,791)
(700)
(1,000)
(1,000)
(Inc.)/Dec. in Investments
-
-
-
-
-
-
Cash Flow from Investing
4,585
(1,791)
(700)
(1,000)
(1,000)
(11,201)
Issue of equity
-
-
-
-
-
-
Inc./(Dec.) in loans
6,707
775
(809)
(1,143)
-
1
Dividend Paid (Incl. Tax)
(168)
(168)
(168)
(168)
(168)
(168)
Others
6,425
(9,274)
2,433
(1,187)
(478)
(486)
Cash Flow from Financing
12,963
(8,668)
1,455
(2,498)
(646)
(653)
Inc./(Dec.) in Cash
(484)
(122)
708
281
203
587
Opening Cash balances
1,306
822
699
1,408
1,689
1,892
Closing Cash balances
822
699
1,408
1,689
1,892
2,480
February 7, 2019
8
Lupin | 3QFY2019 Result Update
Key Ratios
Y/E March (` cr)
FY2016 FY2017 FY2018 FY2019E FY2020E FY2021E
Valuation Ratio (x)
P/E (on FDEPS)
16.7
14.8
32.0
42.3
25.7
19.4
P/CEPS
13.8
10.9
28.3
16.6
12.8
10.6
P/BV
3.4
2.8
2.8
2.7
2.4
2.2
Dividend yield (%)
0.9
0.9
0.6
0.6
0.6
0.6
EV/Sales
3.3
2.6
2.9
2.5
2.1
1.7
EV/EBITDA
13.8
10.7
30.9
17.7
12.1
9.5
EV / Total Assets
2.4
2.0
2.1
2.0
1.9
1.8
Per Share Data (`)
EPS (Basic)
50.5
56.9
26.3
19.9
32.7
43.4
EPS (fully diluted)
50.5
56.9
26.3
19.9
32.7
43.4
Cash EPS
60.8
77.2
29.8
50.9
65.9
79.2
DPS
7.5
7.5
5.0
5.0
5.0
5.0
Book Value
248.3
300.3
300.3
316.5
345.5
385.2
Dupont Analysis
EBIT margin
20.3
18.7
2.3
5.5
9.2
10.5
Tax retention ratio
66.4
72.3
47.2
72.0
72.0
72.0
Asset turnover (x)
1.1
0.9
0.8
0.8
1.0
1.3
ROIC (Post-tax)
14.4
11.9
0.8
3.4
7.0
9.4
Cost of Debt (Post Tax)
0.8
1.5
1.3
1.2
1.2
1.2
Leverage (x)
0.0
0.4
0.3
0.1
0.1
0.3
Operating ROE
14.4
16.3
0.7
3.7
7.3
12.1
Returns (%)
ROCE (Pre-tax)
19.4
15.5
1.6
4.3
8.7
11.6
Angel ROIC (Pre-tax)
28.8
21.1
2.2
6.3
13.1
17.7
ROE
22.7
20.7
8.8
7.3
9.9
11.9
Turnover ratios (x)
Asset Turnover (Gross
1.5
1.4
1.5
1.4
1.6
1.7
Block)
Inventory / Sales (days)
74
74
91
90
75
76
Receivables (days)
79
79
96
96
80
81
Payables (days)
81
70
74
81
75
76
WC cycle (ex-cash) (days)
94
116
133
118
88
88
Solvency ratios (x)
Net debt to equity
0.6
0.5
0.4
0.3
0.2
0.1
Net debt to EBITDA
2.0
1.8
4.0
1.9
0.9
0.4
Interest Coverage
62.4
21.0
1.7
7.9
19.1
31.8
February 7, 2019
9
Lupin | 3QFY2019 Result Update
Research Team Tel: 022 - 39357800
E-mail: [email protected]
Website: www.angelbroking.com
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Analyst in terms of SEBI (Research Analyst) Regulations, 2014 vide registration number INH000000164. Angel or its associates has not
been debarred/ suspended by SEBI or any other regulatory authority for accessing /dealing in securities Market. Angel or its
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by Analyst during the past twelve months.
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contrary view, if any
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Disclosure of Interest Statement
Lupin
1. Financial interest of research analyst or Angel or his Associate or his relative
No
2. Ownership of 1% or more of the stock by research analyst or Angel or associates or
No
relatives
3. Served as an officer, director or employee of the company covered under Research
No
4. Broking relationship with company covered under Research
No
Ratings (Based on expected returns
Buy (> 15%)
Accumulate (5% to 15%)
Neutral (-5 to 5%)
over 12 months investment period):
Reduce (-5% to -15%)
Sell (< -15)
February 7, 2019
10