Accumulate Lupin; target of Rs 1650: Prabhudas Lilladher

Post the USFDA visit of Goa plant in March 2016, Lupin received resolution on all pending observations of USFDA. Previously too, the company had received resolution in Q1FY17 on the observations of the USFDA post their visit of the Goa plant in June 2015. 

With the resolution in Goa to lead new approvals and delayed launch of competitors in metformin XR benefitting Lupin, we increase our estimates for sales by 13% and 15% and PAT by 37% and 38% in FY17E and FY18E respectively. Domestic formualtions growth is also increased to 16.5% from 14% in FY17E‐18E. 

We expect hangover of large competition in Metformin franchise remain a major concern in medium term. Nevertheless, we expect the drag in valuation due to FDA observation to be replaced with optimism of new approvals in core portfolio. We upgrade our recommendation to ‘Accumulate’ and increased TP to Rs. 1,650 (on 20x FY18E earnings) from Rs. 1419.