PL Stock Report: Lupin (LPC IN) - Q1FY24 Result Update - Strong gross margins; US ramp up is key - HOLD

Lupin (LPC IN) - Param Desai - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: HOLD | CMP: Rs1,064 | TP: Rs1,010

Q1FY24 Result Update - Strong gross margins; US ramp up is key

Quick Pointers:

♦ Received milestone income of Rs 2bn from AbbVie.

♦ gSpiriva launch likely by end of Q2FY24 with LPC only being generic player.

Lupin’s (LPC) Q1FY24 adjusted EBITDA for NCE of Rs6.6bn (up 8% QoQ) was 10% above our estimate aided by higher GMs and healthy revenue growth across its key markets. Our FY24 and FY25E EBITDA stands increased by 18% and 9% as we factor in higher US sales and GMs. Margins are likely to improve further with gSpiriva launch, however any competition and delay in ramp up will be key risk to our estimates. At CMP, stock is trading at 25x FY25E EPS and we have factored margin recovery and certain niche launches in US. Maintain ‘Hold’ rating with revised TP of Rs1010/share, 24x FY25E EPS.

♦ Growth driven by key markets: Revenues grew 28.6% YoY to Rs 48bn. Adjusted for Rs2.1bn NCE income, revenue came in at Rs46bn vs our estimate of Rs 44bn. US business remained healthy at $181mn up 3% QoQ. India formulation business grew 10% YoY to Rs 16.3bn. EMEA grew by 19.6% while growth markets were weak with 4% YoY decline. API sales grew strongly by 32% YoY. NCE income consists of milestone income of Rs 2bn for its Phase 1 clinical stage MAL T1 inhibitor program from AbbVie.

♦ Higher GMs; OPM further improve QoQ: Company reported EBIDTA of Rs8.6bn. Adjusted for NCE income, EBITDA came in at Rs6.5bn up 8% QoQ, above our estimate of Rs6bn. Adjusted OPM came in at 14.1% expanded by 50bps QoQ. Adj GM for NCE came in sharply higher at 63%; up 450 bps QoQ mainly due to change in product mix and softening of input prices. However other expenses came in sharply higher at Rs14.7bn; up 13% QoQ. R&D expenses came in higher at 7.9% of sales; up 6% YoY. Tax came in lower at 19%. Reported PAT came in at Rs4.5bn vs our est of Rs3.5bn.

♦ Key concall takeaways: India branded business: Growth was healthy despite NLEM impact and higher in licensing income in base. Mgmt cited products like Ondero likely to go off patent in Aug 2023 and thereby another product in 2025 which may impact growth slightly in India. Company has added +1000 new salesforce; benefit of that likely to start yielding productivity from Q2FY24. US market – Recent clearance of Pithampur unit 2 will aid 5-6 niche opthal launches including Prolensa where company enjoys FTF. On gSpiriva – guided for Q2FY24 end launch and market share ramp up will be gradual. LPC is likely to be only generic in market and not expecting any AG launch also. Price erosion in US base business was in low single digit. R&D spend: Increase in R&D spend was inclined towards newer platforms of biosimilars and injectables as well as clinical trials towards Risperidal completion. Overall 50% of R&D spend goes towards biosimilars, injectables and complex generics. Net debt was down sharply from Rs25bn to Rs13bn as of Q1FY24. Reiterated its margin guidance of +15% in FY24 with likely exit run-rate of 18% with double digit revenue growth. ETR guidance lower to 21-22% for FY24 & FY25 given benefits accruing from Sikkim plant and turnaround in US subsidiary.

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