Lupin

07 Feb

Expect to launch Spiriva in 2HCY22 in the US – Lupin

Update on the Indian Equity Market:

On Monday, NIFTY50 ended in the red amid a broad-based sell-off, ahead of the RBI monetary policy meeting during the week. NIFTY50 ended at 17,214 (-1.7%), dragged by TATACONSUM (-3.9%), LT (-3.6%), and HDFCBANK (-3.5%). POWERGRID (+1.9%), ONGC (+1.3%), and TATASTEEL (+0.7%) led the gainers.

Among the sectoral indices, PSU BANK (+0.9%) was the only one to close in the green. FINANCIAL SERVICES (-2.6%), FINANCIAL SERVICES 25/50 (-2.5%), and PRIVATE BANK (-2.3%) led the laggards.

Lupin announced 3QFY22 results, which were lower than the street estimates. Ms. Vinita Gupta, the CEO, outlined the reasons for the lower revenue growth in Business Standard on 7th February 2022:

  • Respiratory products have become a major growth driver for Lupin in the US. Albuterol has ramped up well over the last few quarters and has a market share of over 20 percent. In Brovana, Lupin has about 45 percent market share. The rest of the business in the US has been stable.
  • In 2HCY22 the company expects to launch a few products such as Spiriva in the US. It also expects to launch the first biosimilar, Pegfilgrastim in the US for which US FDA inspection of the Pune plant is required.
  • The company has shifted production to India for some of its products such as nasal sprays. For some other first-to-file (FTF) products in the US, Lupin is transferring production to some contract manufacturers in India and the US.
  • In 3QFY22, the India business was up 12% YoY due to significant growth in the respiratory products portfolio in 3QFY21. The company launched molnupiravir in the Covid products portfolio. Practicing physicians see molnupiravir as an important part of the regimen.
  • The CEO foresees increasing contribution to the Indian business from the diagnostic business. Lupin has established a national laboratory and has seven centers (clinics) in place- four owned and three are partnered. In FY23, she expects a rapid expansion in both owned and partnered clinics. However, the diagnostic business will be small in the near term in terms of total India business.
  • It has recently announced a partnership with Fancoo for CNS products in China. Lupin is looking forward to getting those products approved and launched in China. It is also working on the respiratory and inhalation pipeline (products developed for the US) which provides an opportunity in China.
  • Apart from the US, Lupin is present in the UK, Canada, Australia. It has a presence in Japan through its partner and is working on more partnerships to have a pipeline of complex generics and biosimilars.
  • In Europe, Lupin is focusing on Germany, the UK, and France and has a big respiratory pipeline in Europe.
  • In Australia, it has acquired Southern Cross Pharma which will make Lupin among the top three generic players in the market.
  • About 25% of the raw materials are imported. The company is self-sufficient in terms of APIs and other materials. The company is trying to reduce the dependence on China by increasing suppliers in India. The CEO believes the PLI scheme will help to develop a more self-reliant supply chain.

 Asset Multiplier comments:

  • The entire pharmaceutical industry is impacted due to supply chain bottlenecks which are impacting margins. Reduced dependency on China, and building domestic capabilities are likely to aid margin recovery in the medium term.
  • Lupin’s 3QFY22 performance was impacted by higher price erosion in the US and raw material cost. While this is expected to impact the performance in the near term, the early launch of key products such as Spiriva is likely to provide some relief to investors.

Consensus Estimate: (Source: Market Screener website)

  • The closing price of LUPIN was ₹ 804/- as of 7-February-2022.  It traded at 21x/ 16x the consensus EPS estimate of ₹ 38.6/ 50.2/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 977/- which implies a PE multiple of 19x on FY24E EPS of 50.2/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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16 Dec

Goa unit accounts for 24-25% of US turnover– Lupin

Update on the Indian Equity Market:

On Thursday, the benchmark index NIFTY 50 closed at 17,248 (+0.2%), 27 points higher. Among the sectoral indices, IT (+1.2%), CONSUMER DURABLES (+0.4%), and OIL & GAS (+0.3%) led the gainers, while MEDIA (-1.8%), PSU BANK (-1.0%), and PHARMA (-0.9%) led the laggards. Among the NIFTY50 components, BAJFINANCE (+2.9%), INFY (+2.5%), and BPCL (+2%) were the top gainers while HINDALCO (-1.8%), CIPLA (-1.5%), and SUNPHARMA (-1.4%) led the laggards.

Excerpts of an interview with Mr. Ramesh Swaminathan, ED & Global CFO (LUPIN) with CNBC-TV18 on 15th December 2021:

  • The Establishment Inspection Report (EIR) that comes with Voluntary Action Indicated (VAI) means that the warning letter issued in 2017 on Lupin’s Goa plant has been lifted. LUPIN has about 109 products that are yet to be approved by the FDA and 24-25 out of these are from the Goa unit.
  • LUPIN expects a lot more approvals to come through from this unit over the next few weeks.
  • There has been a lag in LUPIN’s top line because approvals were not coming and the company was not able to leverage on the pipeline. LUPIN will launch new products as approvals start coming in from the Goa unit.
  • This unit is important to LUPIN because 24-25% of the US turnover comes from it and more approvals coming through would help elevate LUPIN’s revenues.
  • LUPIN’s other 3 facilities in India at Mandideep, Tarapur, Pithampur-II, and Somerset in the US also received warning letters which have affected their top line. It expects these units to get inspected over the next quarters and eventually contribute to the top line.
  • LUPIN has a rich pipeline but they are also focusing on more complex products in terms of innovations like complex injectables and biosimilars.
  • They already got approval for Albuterol which indicates the progress they have had in inhalation products. They also introduced Brovana and Spiriva is on the anvil and a lot many to come in the inhalation segment.
  • LUPIN’s facilities have been under the radar for the last 3-4 years and they have been constantly working on it. LUPIN believes they are in a state of readiness when it comes to India and they expect satisfactory solutions as and when the authorities inspect these facilities.
  • LUPIN has been working on the common thread that exists between all of its facilities with its team of consultants and is confident in this regard.
  • LUPIN is confident and prepared to launch Spiriva in the second half of FY23.
  • As far as diagnostics are concerned, LUPIN is thinking big in that direction but it’s not going to be the most important for them. A huge chunk of this segment is fragmented and only 20% of it belongs to the organized sector so that leaves vast scope for it to become organized.
  • LUPIN plans to follow a doctor-led scientific proposition with an ABL certificate.

Asset Multiplier Comments

  • Due to travel restrictions imposed by the COVID-19 virus outbreak, the entire pharma industry has been experiencing a delay in its facilities getting inspected. As the travel restrictions have been lifted, the inspections are expected to pick up the pace.
  • Many of the pharma companies have incurred Capex for new facilities or undertaken remediation of the FDA’s observations. As these facilities are yet to be inspected, there has been a lag in terms of contribution to revenues. Once the approvals start coming through, we expect the top line of companies like LUPIN to report good growth.
  • LUPIN has been impacted by the price erosion in its generic segment in the USA. The impact of this is expected to be mitigated as the specialized products are launched.

Consensus Estimate: (Source: market screener and Tikr websites)

  • The closing price of LUPIN was ₹ 904/- as of 16-December-2021.  It traded at 23x/ 17x the EPS estimates of ₹ 40/ 52/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 985 implies a P/E Multiple of 20x on FY24 EPS estimate of ₹ 52/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Lupin, Pharmaceuticals 0 Comments Read more...
09 Mar

Investments in generics getting validated now – LUPIN

Update on the Indian Equity Market:

On Tuesday, the equity market reversed from the day’s lows and the Nifty50 index closed 1% higher led by the BFSI sector. The top gainers in the index were SBILIFE (+5.0%), KOTAKBANK (+3.1%), and HDFCBANK (+2.9%) while the losers were BPCL (-4.6%), TATASTEEL (-3.9%), and GAIL (-3.3%). The sectoral gainers were FINANCIAL SERVICES (+2.2%), FINANCIAL SERVICES 25/50 (+1.9%), and PRIVATE BANK (+1.8%). METALS (-2.5%), MEDIA (-1.4%), and REALTY (-1.1%) led the sectoral losers.

On Women’s Day, CNBC-TV18 conducted interviews with some women leaders from India Inc. Here are the excerpts of an interview with Ms. Vinita Gupta, CEO, Lupin with CNBC TV18 on 8th March 2021:

  • Ms. Gupta believes that all the investments made to drive the generics business, and affordable medicines business to the next level are getting validated now. They have been investing in therapies like inhalation, biosimilars, complex injectables, and women’s health products over the past 5 years, and have made tremendous progress in the last 12-18months.
  • In the inhalation therapy, they have received the first major approval for Albuterol in Sept-2020. The timely approval despite the pandemic will be beneficial for asthma and COPD patients who are at a high risk of complications due to Covid-19 infection. Lupin was able to launch the product and is ramping up the production.
  • With more inhalation products pending approval from the US FDA, she believes the inhalation therapy will drive growth in the generics business.
  • There is still a very large number of Corona cases in particular in the US. From a lockdown point, some states have more of a lockdown than others. The elective procedures are still below pre-Covid levels, suggesting things aren’t yet back to normal. They hope things would be in the second half of this year with vaccinations ramping up over the next couple of months.
  • Lupin supplies medicines for about 5% of prescriptions in the USA so maintaining the supply continuity was essential through the pandemic.
  • Despite the pandemic, Lupin was able to achieve QoQ growth in both revenues and profits. She expects the growth to continue on FY22E as well. The Albuterol approval will be a significant growth driver in FY22E.
  • There are 5 other inhaler products in the pipeline in the next 2 years for Lupin in the USA. The FY23 will be a significant year as they intend to launch products like Albuterol, Fostair in Europe, Spiriva in 2023.
  • Price Erosion in the generics will continue to be one of the biggest challenges in FY22E. The price erosion has reduced from earlier periods to low-mid single digits now. The complex generics launches and operating efficiency will help offset the price erosion impact.
  • They have acute and chronic care products within their India portfolio. The chronic care areas such as diabetes, CNS, Cardiovascular, Respiratory have done extremely well. Acute care products have been struggling, in line with the overall acute market in India.

Asset Multiplier Comments

  • Domestic pharma companies have been facing price erosion pressures in generic products in the US for quite some time now. Hence, they have shifted focus on complex generics, and biosimilars which require a higher degree of specialization and are margin accretive. Some of these companies have shifted to a direct-to-market (DTM) approach rather than being partnered companies of US pharma majors.
  • Some domestic Indian companies such as Lupin and Cipla have specialization in respiratory/inhalation therapies. These companies expect Albuterol Sulfate inhaler products to be one of the key growth drivers in the near term. Apart from Albuterol Sulfate, these companies expect an incremental USD 100-150mn opportunity from the respiratory pipeline in the USA.

Consensus Estimate: (Source: market screener website)

  • The closing price of LUPIN was ₹ 1,033/- as of 09-March-2021. It traded at 43x/ 28x/ 23x the consensus earnings estimate of ₹ 23.9/ 37.5/ 45.7 per share for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 1,045 implies a PE multiple of 23x on FY23E EPS of ₹ 45.7/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information pro

By Lupin, Pharmaceuticals , 0 Comments Read more...
04 Jan

Several good products in the pipeline – Lupin

Update on the Indian Equity Market:

On Friday, Nifty closed 0.3% higher at 14,019. Within NIFTY50, ADANIPORTS (+4.4%), TCS (+2.4%), and ITC (+2.3%) were the top gainers, while ICICIBANK (-1.4%), SBILIFE (-1.0%), and HINDALCO (-1.0%) were the top losing stocks. Among the sectoral indices, PSU BANK (+3.3%), AUTO (+0.9%), and IT (+0.8%) were the top gainers while PRIVATE BANK (-0.3%), FINANCIAL SERVICES (-0.2%), and BANK (-0.1%) were the only losing sectors.

Several good products in the pipeline – Lupin

Excerpts of an interview with Mr. Ramesh Swaminathan, ED, and Global CFO, Lupin, aired on CNBC-TV18 on 30th December 2020:
● In the case of new launches- after a drought of the past few years, Lupin had several launches in the recent past. Lupin has launched 12 new products. The most important of the launches has been Albuterol. Albuterol has a large market and the overall inhalations segment is still a growing market in the US.
● Lupin has a pipeline of 150 product launches in the US over the next 3-5 years. Some of that was delayed due to plant issues but now Lupin will launch the bulk of that. Lupin’s story is all about future products in specific areas such as inhalation, complex injectables, and biosimilars.
● In the inhalations segment, Lupin is working on at least 15-20 products.
● Over the last several years, Lupin has invested 9%-9.5% of sales in R&D. This spends will pay returns in the next few years- which was lacking in the past. Lupin had a lack of good products to launch in the last 3-4 years. The company now has a few really good products which will come up in the next few years.
● In 2HFY21E, India will pick up, and going forward growth will sustain. In the US, Lupin has already reached the USD 180 mn per quarter mark and the performance will be better by 4QFY21E.
● Gross margin has been around 63-64% mark which management thinks is a good level. A lot of cost-cutting measures have been implemented which have delivered results in 2QFY21. EBITDA margin was 14.7% in 1QFY21, 16.7% in 2QFY21. Management expects that to stabilize and increase to 20%-21% by 4QFY21E.
● Lupin’s Somerset facility in New Jersey saw 13 observations. Management is disappointed but thinks things are still under control. Somerset plant is not a very big producer as compared to plants in India.
● Management is confident that Indian plants that have been impacted will get resolved. But it’s a waiting game depending on USFDA’s timeline in the covid-19 situation. There are no new filings from the Mandideep unit which has a Warning letter. The same cannot be said about Goa and Pithampur 2 which are very important sites.

Consensus Estimate (Source: market screener website)
● The closing price of LUPIN was ₹ 1,002 as of 1-January-2021. It traded at 43x/ 27x/ 22x the consensus EPS estimate of ₹ 23.4/36.8/44.8 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 968/- implies a PE multiple of 22x on FY23E EPS of ₹44.8/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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09 Nov

Albuterol contribution to be higher from 4Q onwards – Lupin

Update on Indian equity market:
Following its global peers, Indian markets continued to rally for the 5th straight session as Nifty closed the day 143 points higher at 12,157. Within the index, the gainers were led by RELIANCE (3.6%), BAJAJFINSV (3.5%), and INDUSINDBK (3.3%) whereas Maruti (-2.9%), GAIL (-1.9%) and BHARTIARTL (-1.5%) were the laggards. Among the sectoral indices, PVT BANK (2.1%), BANK (1.9%), and FIN SERVICE (1.9%) led the index higher while PHARMA (-0.7%) and FMCG (-0.1%) were the only laggards.
Excerpts of an interview with Mr. Nilesh Gupta, Managing Director, Lupin with CNBC-TV18 dated 05th November 2020:
The company is witnessing growth in the US markets on the back of the launch of Albuterol. The drug is a great growth opportunity for Lupin.
The Albuterol story will really come out in 4QFY21E. The company is still in ramp-up mode. Lupin is expected to get more business in 3Q as compared to 2Q and will see a steady-state of demand from 4Q onwards.
The reason for optimism on Albuterol is a major competitor, Perrigo going out of business with no timeline of coming back.
Commenting on the re-launch of Glumetza, there were some teething problems regarding the product but management is confident about the re-launch of the drug.
The company is able to return to a $180- 200mn quarterly run rate in the US markets. The remediation costs and research and development spend in the past have started fructifying for the company.
In the Indian business, the company is expected to grow 6-8% YoY. The business has suffered in the 1st half of FY21 due to the COVID-related slowdown in demand from the acute segment. The market is expected to grow in the range of 4-5% and the company is confident of beating the industry growth rate.
Consensus Estimate: (Source: market screener website)
The closing price of Lupin was ₹ 931/- as of 05-Nov-2020. It traded at 40x/ 25x/ 21x the consensus EPS estimate of ₹ 23/ 38/ 45 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 945/- implies a P/E multiple of 21x on FY23E EPS of ₹ 45/-.
Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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28 Aug

COVID has created both opportunities and challenges for Pharma companies- Lupin

Update on the Indian Equity Market:

On Tuesday, Nifty closed flattish with just 0.1% gains at 11,559. Within NIFTY50, INDUSINDBK (+6.5%), M&M (+4.2%), and TATAMOTORS (+4.1%) were the top gainers, while ONGC (-1.4%), RELIANCE (-1.4%) and BAJAJAUTO (-1.3%) were the top losers. Among the sectoral indices, REALTY (+6.4%), PSU BANK (+1.1%), and AUTO (+1.0%) gained the most. FMCG (-0.3%) and IT (-0.1%) ended with losses.

COVID has created both opportunities and challenges for Pharma companies- Lupin

Excerpts of an interview with Mr. Ramesh Swaminathan, Executive Director- CFO and Head- Corporate Affairs, Lupin, published on Economic times website dated 26th August 2020:
• Lupin has the approval to manufacture generic version of ProAir- albuterol sulphate. This is a very important market for LUPIN in the inhalation space. The overall market for Ventolin, Proventil and ProAir combined is $ 1.1 bn with volume share of 44%, 9% and 47% respectively.
• The Albuterol Sulphate is a complex product and the competition expected is less. The price erosion could also be potentially lower due to lower competition.
• Lupin has been working on 12 to 15 products in the respiratory segment for the past several quarters. A large chunk of Lupin’s R&D spends is for complex generics including the inhalations portfolio, biosimilars, and complex injectables. The drugs device combination in the inhalation space makes it particularly interesting and challenging, though the mechanical trials associated with it are daunting and expensive.
• Generic ProAir is a very profitable product and Lupin will try to maximize on that considering their market share record. Even though the device itself and API will be imported, given the price stickiness, the gross margins are expected to be good.
• Apart from ProAir, Lupin has plans for several other products in the Respiratory space. Some known products include Fostair in the EU market, first to file in terms of Spiriva which could be in FY23, Dulera in FY22 and a host of other products.
• Generic market in the US has been witnessing a decline. What was potentially a $67 bn market 3-4 years ago has come down to $ 57-58 bn levels. Companies which were at the top have come down in terms of market share whereas Indian companies have been ramping up. But there is a lot of potential in other emerging markets. The good thing about any generic portfolio is that it can be levered across various markets.
• Lupin’s US revenue of $ 155-158 mn in 1QFY21 was an aberration and they expect to bounce back from those levels 2QFY21E onward. Lupin had a stroke of bad luck with metformin and that would also be back by the end of 2QFY21. Products like Albuterol lined up will help Lupinto be back into the revenue levels seen over the last several quarters.
• Covid has brought in opportunities for Pharma companies but also posed a lot of challenges to the supply chain. One of the opportunities is the Albuterol market itself which is growing at 13%. But in general, the topline has been impacted across markets.
• In case of India, after virtually no growth in 1QFY21, July was okay, and in August Lupin reached the same levels as last year and expect things to pick up September onwards.
• Both acute and chronic in the US have declined and markets like Philippines or Latin America, Mexico in particular, have been significantly impacted.
• Sales promotion and travel expenses have certainly come down. Lupin is also exploring newer ways of promoting their products with doctors in India as well as overseas.

Consensus Estimate (Source: market screenerwebsite)
• The closing price of LUPIN was ₹ 983/- as of 27-Aug-2020. It traded at 44.6x/ 35.2x/ 28.7x the consensus EPS estimate of ₹ 25.7/ 37.6/ 47.1 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 882/- implies a PE multiple of 18.7x on FY23E EPS of ₹ 47.1/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Lupin, Pharmaceuticals 0 Comments Read more...
11 Aug

Pharma needs more government sops to ramp up API production – LUPIN

Update on Indian equity market:

Nifty started the week on a positive note, ending 56 points higher at 11,270. Within NIFTY50, CIPLA (9.5%), M&M (4.9%) and LT (4.8%) were the top gainers while EICHERMOT (-2.2%), ASIANPAINT (-1.2%) and MARUTI (-1.2%) were the top losers. All the sectoral indices closed the day in green led by PHARMA (5.5%), REALTY (2.8%), and IT (1.0%).

Excerpts of an interview with Mr.Nilesh Gupta, Managing Director, Lupin published in Mint dated 10th August 2020:

  • In the April-June quarter, the company was able to show improvement in margins even though the sales were down. Mr Gupta mentioned that margins were a function of the savings that the company was able to make in this quarter and he expects it to be sustainable even as business picks up.
  • The biggest savings came from SG&A (selling, general & administrative expenses). The company has planned to adopt a more digital approach in how they promote to doctors. 
  • In the specialty segment, Solosec (anti-infective) sales were impacted due to pandemic. The company had to cut down the sales force to a third. It has reduced the cash burn significantly. Other specialty products like NaMuscla and biosimilars like Etanercept will not get impacted in the same way and the company is continuing with its plans.
  • In case of APIs, the company was able to pass on input price increases to customers. The move away from China also opened opportunities for companies from other geographies including Lupin. The last two to three years has seen a resurgence of API and it still remains a great opportunity. The industry needs support from the government to ramp up the facilities.
  • The recent order from the US government will affect the revenues of essential medicines. Lupin has manufacturing in the US and can set up plants anywhere in the world. The order is not an individual company issue but has implications for India.

Consensus Estimate: (Source: market screener website)

  • The closing price of LUPIN was ₹ 968/- as of 10-Aug-2020. It traded at 37x/ 25x/ 21x the consensus EPS estimate of ₹ 26.1/ 38.2/ 46.5 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 865/- implies a PE multiple of 19x on FY23E EPS of ₹ 46.5.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Lupin, Pharmaceuticals 0 Comments Read more...
01 Jul

Replacing China as a global chemical supplier is a medium to long term story- Lupin

Update on the Indian Equity Market:

 

On Tuesday, Nifty closed marginally lower at 10,302. Within NIFTY50, SHREECEM (+3.1%), MARUTI (+2.7%), and ICICIBANK (+2.6%) were the top gainers, while BPCL(-2.5%), POWERGRID (-1.9%) and SUNPHARMA (-1.9%) were the top losers. Among the sectoral indices, AUTO (+1.1%), FMCG (+0.3%), and FIN SERVICE (+0.3%) gained the most.  PSU BANK (-1.8%), MEDIA (-1.7%) and PHARMA (-1.5%) were the losing sectors.

 

Replacing China as a global chemical supplier is a medium to long term story- Lupin

 

Excerpts of an interview with Mr. Ramesh Swaminathan, Global CFO –Lupinpublished in Economic Times dated26thJune 2020:

  • The US Generic market has seen different phases in terms of pricing in the last 2 decades. Pricing was good during 2001-2005. In the 2005-2009 period, there was a sharp decline in prices which picked up later. 2011-2015 saw some tailwinds for pricing. 2015 onward due to customer consolidation and increased competition in generic space, the Pharma companies lost bargaining power leading to pricing pressure. However today, the situation has stabilized and everything depends on the portfolio.
  • There have been a lot of Indian generic entrants in the US generic space and that is where the competition is higher. US companies such as Teva, Mylan, and Sandoz have lost market share to the new entrants. But the smaller companies are now realizing that earning ROCE is not as easy. Companies have to invest in FDA approved manufacturing facilities of different kinds, there is a waiting period for getting ANDA approvals, and there is a working capital blockage. As a result, some players are backing out which will bring some pricing stability going forward.
  • In the last several years, Lupin, along with the other bigger companies, is focusing on delivering more complex generics including complex injectables, inhalation, etc. Complex injectables as a segment are growing at over 6-7%. Inhalations segment is growing at over 15%. These segments have lower competition because of the complexity involved.
  • In the specialty segment, a lot of the products are coming into the market over the next few years, which will help with the realizations for Indian generic companies. Companies need to have deep pockets because Specialty calls for a very different kind of approach. Innovation quotient and clinical data play a critical part.
  • Biosimilars is the sunrise industry for Indian pharma companies. There are considerable entry barriers, but once a company has a clone, has done immunogenicity studies well and, then potentially development risk will be mitigated. The pricing will also be better due to lower competition. Europe has adapted more to biosimilars. Once the American market picks up, the realization for players in that market would be much higher.
  • Lupin has got into women’s health because that is one space which has been vacated by big pharma and to that extent, the competition there is much lower.
  • Replacing China as a chemical producer for the world will be a medium to long term story. India has about 25% of USFDA approved API capacities in the world but there is still some way to go when it comes to supply. The government is trying to encourage this shift but the investments have to materialize.
  • There are 3 specific growth drivers for Indian pharma companies. One is the large American market, specifically the complex products which Lupin is also getting into. Second, the Indian domestic market is still underpenetrated. Due to the COVID-19 situation, there is going to be thrust from the Indian government and more public awareness which will aid faster growth. Third, many emerging markets are underpenetrated and if the portfolio is right, there is potential for growth in those markets.
  • There might be some demand contraction in India as well as America due to COVID-19 disruption. However, it is a very temporary situation and the second half of FY21E will be much better.
  • The flavor of the day seems to be a nationalistic foot forward. We can see in India as well as in America and other parts of the world. Lupin has been conscious about this for a while and has local manufacturing in countries where it operates. For Indian pharma companies, the basic paradigm should be low-cost manufacturing from India but supplemented with local manufacturing capabilities in overseas markets.

Consensus Estimate: (Source: market screener website)

  • The closing price of lupin was ₹ 910/- as of 30-June-2020. It traded at 31.9x/ 23.4x the consensus EPS estimate of ₹ 28.5/ 38.9 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 852/- implies a PE multiple of 21.9x on FY22E EPS of ₹ 38.9.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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