Stock Review: LUPIN

Drug maker Lupin, which was expected to underperform, surprised the market with a better show during the fourth quarter ended March 2011.

It logged a 17.5% growth in net sales and a 3% increase in net profit for the quarter impacted as it was by a price erosion of its generic Lotrel in the US and higher base sales of Suprax drug (in Q4FY10). Consequently, the operating profit margin also dropped by 220 bps to 20.6%.

At over 40%, the US region is the largest contributor to the company's formulations business. Delay in product approvals and maturing sales of Lupin's flagship drug Suprax in the US led to a slowdown in Lupin's performance over the past two quarters. A stronger pipeline with 48 approved drugs and 100 pending approvals is likely to be the growth driver for the company.

Besides Suprax, Antara and AllerNaze are two product opportunities that the company is banking upon to work for it in the US. The launch of generic oral contraceptives by the end of this fiscal and generic opthalmics are other two big opportunities that the company is gearing up to explore. Lupin has 33 pending approvals in Europe. The full impact of its presence is likely to be seen over the next two years as the company increases its participation in the tender business in Germany and ramps up its sales in France and the UK. The company has been growing at 13-15% in Japan against the single-digit growth of its pharma industry. In India, South Africa, Russia and other emerging markets, the company is growing in double-digits. In India, the company grew at 17% in FY11, higher than the industry growth rate.

On a yearly basis, Lupin delivered a more consistent performance, with consolidated sales growing 19.5% and net profit rising 26.5%. Despite short-term blips in performance, the company has promising growth drivers. It has diversified into lifestyle drugs from anti-infectives over the past six years.

Around 75% of its product portfolio is vertically integrated, providing strong cost-effectiveness. It spends 7.5% to 8% of its revenues towards R&D. With the company's increasing thrust on milking emerging markets, the company's revenue break-up is likely to undergo a change, going ahead.