Multi Bagger - Lupin

[UAE Exchange Etrade]

NSE ID : LUPIN

CMP - Rs. 620/-

Target price - Rs.750/-

Lupin is the 5th largest and fastest growing generics player in the US (5.1% market share by prescriptions, IMS Health) and the 3rd largest Indian pharmaceutical company by sales. The company is also the fastest growing top 10 generic pharmaceutical players in Japan and South Africa (IMS).

The company posted excellent numbers for the quarter ending December 2012. The Revenues for the quarter ended December 2012 of Rs.2501.06 crores rose by 37.40% from Rs.2300.68 crores yo- y. The company has a record quarter driven by strong operating performance. Operating profit skyrocketed 61.38% at about Rs.605 crores as against Rs.515.93 crores in the like period last year. The company has reported 42.62% rise in its net profit at Rs.335.23 crore for the quarter as compared to Rs.290.46 crore for the same quarter in the previous year. It continues to improve margins consistently. Operating margin expanded 360 bps at 24.19% and Net profit margin surged about 50bps at 13.40%. EPS for the quarter stood at Rs.7.49.

Material cost increased to 37.94% to net sales at Rs.935.67 crores in Q3FY12 as against Rs.625.78 crores in Q3FY12 which is 34.93% to net sales. R&D expense stood at 9.7% of net sales at Rs.238.20 crores as compared to Rs.141 crores during Q3FY12. Capital Expenditure stood at Rs.97 cr. During the quarter.

Lupin has launched five products in the US market and has received approval for 3 products from the USFDA during the quarter.

Valuation

With increasing traction in Indian business, strong contribution from US business, robust pipeline of products and USFDA approvals; Lupin's growth prospects looks promising. We believe Lupin Ltd. is trading at an attractive valuation at 23.64x and 19.56x of FY13EPS of Rs.26.16 and FY14EPS of Rs.31.62. We initiate a 'BUY' on the stock with a target price of Rs.750 (appreciation of about 21%) with the medium to long term investment horizon.