* price as on January 01, 0001

India

Previous target:	664
Up/downside:	-2.1%
Reuters
Bloomberg:	LPC IN
Market cap:	US$4,242m
	Rs308,064m
Average daily turnover:	US$12.6m
Current shares o/s:	454.4m
Free float:	5,290.0%

Key changes in this note

Maintain Hold rating.

Target price remains unchanged at Rs664.

Price performance	1M	3M	12M
Absolute (%)	6.0	12.8	(27.9)
Relative (%)	0.0	2.6	(31.7)

Major shareholders	% held
Promoter	47.1
LIC	8.4
ICICI Pru MF	5.5

Analyst(s)

Bino PATHIPARAMPIL

T (91) 22 4161 1552
E bino.pathiparampil@incredcapital.com

Kashish THAKUR

T (91) 22 4161 1549
E kashish.thakur@incredcapital.com

All eyes on gSpiriva launch

Regulatory approval for gPerforomist in the US and diabetes brand acquisitions in India do not change our projections or our view on Lupin stock.

We are concerned about the delay in approval to gSpiriva in the US, which poses a 25-40% risk to FY23F/24F core earnings.

Our estimates remain unchanged; maintain Hold rating on the stock.

New developments don’t change projections; gSpiriva nod critical

In two separate developments, Lupin announced the US Food and Drug Administration or US FDA approval for gPerformist and the acquisition of Ondero and Ondero-Met brands from Boehringer. These developments neither materially change our projections or our view on the company. However, we are concerned about the delay in US FDA approval for gSpiriva, which poses a downside risk to our estimates. gSpiriva contributes 40% and 25% to our FY23F and FY24F core earnings, respectively.

Lupin is the third entrant in gPerforomist market

Perforomist is Formoterol inhalation solution, originally from from Mylan, for obstructive pulmonary diseases. The brand had pre-generic sales of about US$300m. Teva and Alembic already have generic versions of the drug in the US market; Lupin is the third generic entry. We expect gPerforomist to be a US$10-15m product for Lupin and this does not materially change our forward earnings estimates.

Acquired brands were already in Lupin’s existing portfolio

Lupin acquired the brands Ondero and Ondero-Met from Boehringer for a consideration of Euro 26m. These are brands of linagliptin and linagliptin + metformin, that were already being marketed in India by Lupin under a license from Boehringer. Hence, we do not expect any change in our domestic revenue estimates from this development.

Acquisition is a post-patent strategy

Linagliptin is under patent protection in India till Aug 2023, and Boehringer & Lupin are the only players in this market. Generic competition will emerge in Aug 2023, leading to price decline. With acquisition of these brands, Lupin will be able to manufacture its own low-cost generic versions and market them under the same brand names after Aug 2023.

Character of domestic business is changing

We continue to view these sort of transactions as becoming essential to sustaining a healthy growth rate for companies in the domestic pharmaceutical market. This will incrementally reduce the high return ratios and cash flow that the domestic branded market has historically enjoyed. We retain Hold rating on Lupin with an unchanged target price of Rs664. Significant delay in regulatory approval for gSpiriva is key downside risk. Major improvement in margins beyond what we have built in is key upside risk.

Financial Summary	Mar-21A	Mar-22A	Mar-23F	Mar-24F	Mar-25F
Revenue (Rsm)	151,630	164,055	170,435	184,330	203,427
Operating EBITDA (Rsm)	25,669	20,972	22,315	29,659	37,003
Net Profit (Rsm)	12,165	(15,280)	9,556	14,462	19,739
Core EPS (Rs)	26.7	23.3	21.0	31.8	43.4
Core EPS Growth	151.7%	(12.9%)	(9.7%)	51.3%	36.5%
FD Core P/E (x)	25.34	29.10	32.22	21.29	15.60
DPS (Rs)	7.5	10.5	7.5	7.5	8.5
Dividend Yield	1.11%	1.55%	1.11%	1.11%	1.25%
EV/EBITDA (x)	11.59	15.77	15.06	11.27	8.89
P/FCFE (x)	19.27	(22.17)	36.11	16.37	13.63
Net Gearing	(7.7%)	18.3%	21.8%	18.6%	13.1%
P/BV (x)	2.23	2.53	2.44	2.25	2.01
ROE	9.2%	8.2%	7.7%	11.0%	13.6%
% Change In Core EPS Estimates
InCred Research/Consensus EPS (x)

Figure 1: Core valuation table

	FY21	FY22	FY23F	FY24F	FY25F
Core EPS (Rs)	24.4	19.1	18.2	29.7	41.2
Core EPS growth	227.0%	-22.0%	-4.5%	63.1%	38.9%
Cash per share (Rs)	90.6	42.1	22.7	19.4	16.5
Current core P/E (Rs)	26.0	33.3	34.9	21.4	15.4
Core ROIC	11.7%	9.0%	8.9%	12.9%	16.5%

BY THE NUMBERS

Profit & Loss

(Rs mn)	Mar-21A	Mar-22A	Mar-23F	Mar-24F	Mar-25F
Total Net Revenue	151,630	164,055	170,435	184,330	203,427
Gross Profit	98,007	99,242	102,371	113,717	126,105
Operating EBITDA	25,669	20,972	22,315	29,659	37,003
Depreciation And Amortisation	(8,874)	(9,510)	(9,428)	(9,700)	(10,000)
Operating EBIT	16,795	11,462	12,887	19,959	27,003
Financial Income/(Expense)	(1,406)	(1,428)	(1,628)	(1,400)	(1,300)
Pretax Income/(Loss) from Assoc.
Non-Operating Income/(Expense)	1,363	2,101	1,639	1,200	1,200
Profit Before Tax (pre-EI)	16,751	12,135	12,898	19,759	26,903
Exceptional Items
Pre-tax Profit	16,751	12,135	12,898	19,759	26,903
Taxation	(4,485)	(1,372)	(3,209)	(5,137)	(6,995)
Exceptional Income - post-tax	13	(25,861)
Profit After Tax	12,279	(15,097)	9,690	14,622	19,909
Minority Interests	(114)	(183)	(134)	(160)	(170)
Preferred Dividends
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit	12,165	(15,280)	9,556	14,462	19,739
Recurring Net Profit	12,152	10,580	9,556	14,462	19,739
Fully Diluted Recurring Net Profit	12,152	10,580	9,556	14,462	19,739

Cash Flow

(Rs mn)	Mar-21A	Mar-22A	Mar-23F	Mar-24F	Mar-25F
EBITDA	25,669	20,972	22,315	29,659	37,003
Cash Flow from Invt. & Assoc.
Change In Working Capital	(1,925)	150	(6,344)	(7,662)	(9,431)
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow	3,035	(16,679)	(1,703)	(4,372)	(5,654)
Net Interest (Paid)/Received	(1,406)	(1,428)	(1,628)	(1,125)	(1,611)
Tax Paid	(7,155)	658	(12)	200	100
Cashflow From Operations	18,217	3,673	12,629	16,700	20,408
Capex	(6,776)	(8,980)	(10,000)	(11,000)	(11,500)
Disposals Of FAs/subsidiaries
Acq. Of Subsidiaries/investments		(1,468)	(3,250)
Other Investing Cashflow
Cash Flow From Investing	11,441	(6,775)	(621)	5,700	8,908
Debt Raised/(repaid)	(13,677)	(10,787)	(3,482)	(3,587)	(6,725)
Proceeds From Issue Of Shares	106	2
Shares Repurchased
Dividends Paid	(2,723)	(2,951)	(4,771)	(3,408)	(3,408)
Preferred Dividends
Other Financing Cashflow	21,656	(1,606)	12	(200)	(100)
Cash Flow From Financing	5,361	(15,343)	(8,241)	(7,195)	(10,233)
Total Cash Generated	16,803	(22,117)	(8,862)	(1,495)	(1,325)
Free Cashflow To Equity	15,982	(13,888)	8,526	18,813	22,591
Free Cashflow To Firm	31,065	(1,674)	13,636	23,800	30,615

BY THE NUMBERS…cont’d

Balance Sheet

(Rs mn)	Mar-21A	Mar-22A	Mar-23F	Mar-24F	Mar-25F
Total Cash And Equivalents	41,346	19,228	10,366	8,871	7,546
Total Debtors	44,743	42,619	51,130	55,299	61,028
Inventories	40,920	46,307	35,791	38,709	42,720
Total Other Current Assets	12,855	16,422	39,200	42,396	46,788
Total Current Assets	139,864	124,577	136,488	145,275	158,082
Fixed Assets	52,344	53,973	54,545	55,845	57,345
Total Investments	319	303	303	303	303
Intangible Assets	37,126	31,306	34,556	34,556	34,556
Total Other Non-Current Assets	6,451	8,053	8,053	8,053	8,053
Total Non-current Assets	96,241	93,635	97,457	98,757	100,257
Short-term Debt	30,494	37,946	37,946	10,000	10,000
Current Portion of Long-Term Debt
Total Creditors	20,144	22,829	26,662	27,841	29,956
Other Current Liabilities	33,722	21,990	32,586	34,028	36,613
Total Current Liabilities	84,361	82,764	97,193	71,868	76,570
Total Long-term Debt	161	3,638	156	24,515	17,790
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities	13,001	9,590	9,590	9,590	9,590
Total Non-current Liabilities	13,162	13,227	9,746	34,104	27,380
Total Provisions
Total Liabilities	97,523	95,992	106,939	105,973	103,949
Shareholders’ Equity	138,031	121,533	126,184	137,078	153,238
Minority Interests	550	687	821	981	1,151
Total Equity	138,581	122,220	127,005	138,059	154,389

Key Ratios

(Rs mn)	Mar-21A	Mar-22A	Mar-23F	Mar-24F	Mar-25F
Revenue Growth	(7.5%)	8.2%	3.9%	8.2%	10.4%
Operating EBITDA Growth	3.7%	(18.3%)	6.4%	32.9%	24.8%
Operating EBITDA Margin	16.9%	12.8%	13.1%	16.1%	18.2%
Net Cash Per Share (Rs)	23.53	(49.20)	(61.04)	(56.44)	(44.55)
BVPS (Rs)	303.78	267.47	277.71	301.68	337.25
Gross Interest Cover	11.94	8.03	7.92	14.26	20.77
Effective Tax Rate	26.8%	11.3%	24.9%	26.0%	26.0%
Net Dividend Payout Ratio
Accounts Receivables Days	119.40	97.19	100.39	105.37	104.36
Inventory Days	256.92	245.62	220.13	192.55	192.19
Accounts Payables Days	150.66	121.01	132.70	140.86	136.42
ROIC (%)	8.9%	5.6%	5.9%	8.6%	11.0%
ROCE (%)	9.9%	6.9%	7.8%	11.8%	15.2%
Return On Average Assets	5.5%	5.2%	4.8%	6.6%	8.3%

Key Drivers

(Rs mn)	Mar-21A	Mar-22A	Mar-23F	Mar-24F	Mar-25F
Outstanding Orderbook	N/A	N/A	N/A	N/A	N/A
Order Book Depletion	N/A	N/A	N/A	N/A	N/A
Orderbook Replenishment	N/A	N/A	N/A	N/A	N/A
ASP (% chg, main prod./serv.)	N/A	N/A	N/A	N/A	N/A
Unit sales grth (%, main prod./serv.)	N/A	N/A	N/A	N/A	N/A
Util. rate (%, main prod./serv.)	N/A	N/A	N/A	N/A	N/A
ASP (% chg, 2ndary prod./serv.)	N/A	N/A	N/A	N/A	N/A
Unit sales grth (%,2ndary prod/serv)	N/A	N/A	N/A	N/A	N/A
Util. rate (%, 2ndary prod/serv)	N/A	N/A	N/A	N/A	N/A

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