Lupin - Q2FY21 - YES Securities

Lupin (Q2 FY21) - SELL (Target Rs770 Downside 17.5%)

Our view: Albuterol ramp up in Q4 implies full year benefit in FY22 which would boost margin to 20.5%; albeit we see risks to market share once Perrigo is presumably back next fiscal. While niche launches like Tacrolimus, Mycophenolate would offset the base business erosion, we believe large one-off products like Albuterol carry risk of competitive attack which creates uncertainty in sales forecast beyond 6 months as also precludes multiples rerating. We built in US sales of US$860mn in FY21 and US$1bn in FY22 which includes increased share in Albuterol and Levothyroxine coupled with rebound in domestic business next fiscal. Remain Sellers based on unchanged 21x PE applied to FY22 EPS of ~Rs37, a minor uptick to prior estimates even though ~4% below consensus; our revised TP stands at Rs770. Key risk would be US sales handily beating FY22 estimates as outlined above which would have a beneficial impact on margin. A 15% beat on US numbers poses 25% upside risk to our FY22 estimates.

Q2 FY21 earnings call highlights

- 6-8% growth in domestic market in H2 FY21

- 18.5% margin in Q3 and Q4 and over time 20-22% as was seen in the past with potential upside if Albuterol surprises

- Albuterol - meaningful ramp up in Q4; did not supply 2-month of inventories in Q2; pricing is holding up as demand -supply gap exists. Capability to increase to 1mn units/month in Albuterol from Q4 onwards

- Glumetza launched in Sep and ramping up share

- Ramp up in Levo and launches - Tacrolimus, Mycophenolate + flu season tailwind would drive US in H2

- Spiriva - launch date is not before June 22 so confident will get approval prior to that

- Injectables - 2 depot filings in 2022 followed by liposomal products - Doxil in 2024

- Pegfilgrastim - reiterated to be filed later in current fiscal

- US Gx pricing - stable qoq for past 2 Qs in mid-single digit %

- Solosec - business down 50% due to COVID (35% face to face) + tone down of sales people to 45 from 120. So, Rx and sales flat qoq. Working on non face-to-face like digital since product is sensitive to sales push + filing for new indication will push Solosec by June next year

- Forstair- launch in Q4 in Europe

- Enbrel - to launch in different countries over 12 months; Mylan launched in Germany

- Q3 staff costs to be higher due to increments; other expenses include forex loss, one-time costs (Rs100-150mn) and higher field activity in India and other markets

- FDA will not travel till at least there is vaccine and is being widely used

Shares of LUPIN LTD. was last trading in BSE at Rs.935.65 as compared to the previous close of Rs. 944.25. The total number of shares traded during the day was 203300 in over 5750 trades.

The stock hit an intraday high of Rs. 953.05 and intraday low of 922. The net turnover during the day was Rs. 189578397.

Source : Equity Bulls

Keywords