Lupin’s Q2FY17 revenues were in-line with our estimates. Revenues grew by 32% YoY to INR 42.1 bn (as compared to our estimate of INR 41.9 bn). US business posted robust growth of 70% YoY and de-growth of 9% QoQ in USD terms from USD 172mn in Q2FY17 to USD 292mn in Q2FY17 (and USD 322 mn in Q1FY17) on account of robust sales from gGlumetza and limited competition gFortamet. Lupin launched 2 products in the US market. Indian business posted a healthy growth of 12.1% YoY to INR 10 bn on account of seasonality. South African sales grew by 27% YoY to ZAR 252 mn. Germany sales grew by 31% to EUR 6.4 mn and Philippines sales de-grew 16% to PHP 448 mn. Latam region de-grew by 9% to INR 1 bn with Brazil growing by 11% to BRL 31 mn and Mexico posting de-growth of 32% YoY to MXN 93 mn. Japanese sales were up 10% YoY in Yen terms to JPY 6.7 bn and 35% YoY in INR terms to INR 4.4 bn. EBITDA for the quarter stood at INR 10.3 bn up 55% YoY with EBITDA margins at 24%. R&D as a % of sales was at 13.6% at INR 5.7 bn.
PAT for the quarter stood at INR 6.6 bn up 58% YoY on account of lower tax rate. We remain confident on Lupin’s ability to generate superior returns, sustain robust revenue growth over FY16-18E on account of a high quality and loftier US pipeline through Gavis acquisition coupled with risk mitigation strategy employed in form of tech transfer and enhanced remediation efforts for its Goa facility; successful integration of Gavis into Lupin’s pipeline and enhanced footprint in the Japanese markets.
We maintain our rating of ‘BUY’ valuing the company at a higher multiple on account of enhanced R&D initiatives, robust US pipeline and a robust growth trajectory across all key markets. We reduce our earnings estimate by our 14% / 5% for FY17E/FY18E EPS respectively on account of slower than expected ramp-up in Gavis portfolio and higher competition in key products; with a revised target price INR 1,769 (earlier INR 1,863) at 24xFY18E EPS of INR 74.
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