Lupin

An all-round growth delivered by Lupin bodes well for its future prospects

 

LUPIN, our recommendation of March 2008, has witnessed its stock price tripling in the past two years. It has emerged as an outperformer in the pharma space. Despite the spectacular rise, the company's stock, now counted among frontline pharma stocks, is still a good longterm buy. The company, over the years, has grown to be one of the 10 ten generic companies in the US, Japan and South African markets. Charting a remarkable growth in its revenues and profits, Lupin's stock is offering promising growth potential.

BUSINESS:

Lupin has significant presence in cardiovascular, diabetology, anti-infectives, pediatrics, CNS, gastrointestinal and others, while continuing to maintain its leadership position in its traditional segment of anti-TB. The company has been delivering strong growth across geographies with the US and Europe contributing nearly 40% to its total revenues. It is also increasing its presence in other markets. Even in the domestic market, the company is growing at a higher rate than average industry growth rates.

GROWTH STRATEGY:

Focus on the branded generic business in the US, identifying opportunities in emerging markets and building a strong product pipeline to be launched in the regulated markets seem to be the company's strategy for growth. The growing Japanese generic market augurs well for Lupin, which had been an early entrant in that market. Its recent acquisition of Antara, a cholesterol-lowering drug, brings good growth opportunity for the company in the US market. The company is also keen on inorganic growth and hence scouting for acquisitions in Latin America, Japan and the Middle East and is likely to announce a deal by this fiscal end. Even in the past, the company has grown through acquisitions in India and abroad. Its recent issue of FCCBs of $100 million (maturing in January 2011) is likely to provide it the warchest for acquisitions. Lupin is also eyeing growth opportunities in promising areas of biological molecules and contract manufacturing services.

FINANCIALS:

The revenues of the company grew at a compounded rate of 25% to Rs 3,776 crore over the past five fiscal years. The bottomline has grown at a CAGR of 42% to Rs 504 crore during the same period. The company estimates its revenues to grow at a rate of 25-30% for the next fiscal. Its operating profit margin have been steadily improving and are likely to improve by 50-75 bps over the next couple of years from the current annual margin of 19.4%. The company has been aggressively undertaking large capex since last three fiscals to fuel its growth appetite. Despite
this, it has been a consistent dividend payer with a dividend yield of 0.7%. At 32%, the dividend payouts have grown at a slower CAGR than the growth in its profits for the past five fiscals. Since the company is in an aggressive growth phase, it is using its earnings to fund growth.

VALUATIONS:

The company is valued at more than three times its consolidated annual sales. The company, with a fast growth track record, is trading at premium valuations of price to earnings ratio of 25 in line with leading companies like Cipla, Ranbaxy Labs and Sun Pharma. Lupin's stock has gained 163% in the past one year — significantly outperforming the Sensex. While investors may not witness a repeat of this performance, the stock remains a good long-term investment bet in the pharma space.