Multi Baggers

Lupin

Company Profile:-

Lupin is one of the largest manufacturers of drugs that combat tuberculosis, bacterial infection and cardiovascular disease and is positioned among the top six pharmaceutical companies of India. It is India's only sterile cephalosporins facility to receive approvals by the USFDA and UKMCA. It has efficacious products in a range of therapeutic areas including Diabetes, Pediatrics, GI, Pain Management and Gynaecology. Lupin also manufactures NSAIDS, Cox2 inhibitors and herbal-based phtomedicines. It has 10 API (Active Pharmaceutical Ingredient)/intermediates and finished products facilities across 5 different bases in India.

Financial Position:-

Lupin’s Revenue rose in the First Quarter FY’09 by 49% to Rs 879.2 crore and the EBIDTA went up by 86% at Rs 152.7 crore, because of decline in other expenses. Its Net Profit registered a fantastic growth by 101% to Rs 112 crore as compared to Rs 55.9 crore in the first quarter of FY’08. The company’s advanced markets formulation business in USA and Europe recorded a growth of 69% with the sales of Rs 253 crore. The API (Active Pharmaceutical Ingredient) revenue from advanced market showed a growth of 47% to Rs 20 crore. Geographically the domestic market occupies 41% of the total business and the international market occupies the rest. International market revenues recorded a rise of 88% to Rs 517.5 crore. Its Domestic Formulation Business is growing at 25%. Lupin successfully extended its Suprax Brand franchise, recording a prescription growth of 20% during the current quarter.

Investment Positives:-

Strong growth in U.S and good start in Japan:

It has launched the Ramipiril Capsules in the US and this along existing formulations already in the U.S and E.U is contributing to profitability.. Its subsidiary in the US, Lupin Pharmaceuticals, Inc. (LPI) has received tentative approval for the Abbreviated New Drug Application (ANDA) for Escitalopram Oxalate Tablets 10 mg and 20 mg from the U.S. Food and Drug Administration (USFDA).

Lupin’s subsidiary in Japan, Kyowa Pharmaceutical Industry Co Ltd, (Kyowa) has received approvals for 10 products from the Ministry of Health & Labour Welfare, Japan (MHLW) and expects to launch these in July 2008. Business in Japan contributes 10% to overall business in the current quarter.

Expanding The CRAMs franchise:
 
The company’s CRAMS business through the new entity Novodigm is progressing well, with sales of Rs 8.2 crore. It has entered into a promotional agreement with ASCEND Therapeutics for SUPRAX® 400 mg Tablets in the U.S. Suprax brand franchise extended with the launch of Suprax 400 mg tablets. Its integrated manufacturing gives larger economies of scale.

Formulations Continue Robust Performance:

The formulations revenue from the emerging markets including India reported a growth of 22% with sales of Rs 328.7 crore. Its leading brands are maintaining their market share and this gives a base to the company to expand and diversify.

Research and Development:

It is one of the few Indian pharmaceutical companies with a single-minded focus on the marketplace and brand building. It has a proven track record of developing cost-effective, eco-friendly and non-infringing technologies. It recently appointed Raj Kamboj who is an eminent scientist from the world of drug discovery, as the President of New Chemical Entity Research. This reflects the Company’s commitment to continually strengthen its team by attracting the best talent globally. It has a research park at Pune city, India, having 160 scientists, striving towards global leadership in process innovation and new drug discovery. The Lupin Human Welfare and Research Foundation (LHWRF) is committed to rural reconstruction. The program reaches out to more than 1919 villages.

Concerns:-

Lupin has decided to expand into competitive markets like US, EU and Japan. While the potential and profitability are large,there could be issues regarding delays and regulatory actions. It entry to the lucrative CRAMs business though welcome again carries risk related to quality, govt approvals etc. The fast growth in Lupin is predicated on a good showing by Suprax and competitive pressures may lead to shortfall in targets.

Valuation:-

Lupin has shown a strong growth in profits during the period. It  has reported a quarterly EPS of Rs 13 which translates to an EPS of around Rs 52 per share for FY09. At CMP of Rs 734, it trades at a P/E of around 14. The PEG ratio (PE/growth in NP) comes to 0.13. We recommend the stock as an excellent investment with a target price of Rs 940.

Disclaimer:

The share is in the portfolio of clients of the Portfolio Management Scheme of P.N.Vijay Financial Services P Ltd of which P.N.Vijay is the Managing Director.