* price as on January 01, 0001

India

Previous target:	664
Up/downside:	-0.2%
Reuters
Bloomberg:	LPC IN
Market cap:	US$4,163m
	Rs302,290m
Average daily turnover:	US$12.6m
Current shares o/s:	454.4m
Free float:	5,290.0%

Key changes in this note

Reduce FY23F core earnings estimate by 30%.

Maintain Hold rating with an unchanged target price of Rs664.

Price performance	1M	3M	12M
Absolute (%)	5.1	12.6	(29.3)
Relative (%)	(1.1)	4.0	(32.7)

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

The wait gets longer

After the CRL letter from the US FDA on gSpiriva ANDA, we have removed it from our FY23F estimate but continue to build in a full upside in FY24F.

Accordingly, we have cut our FY23F core earnings estimate by 30% but maintain FY24F core earnings estimate.

We continue our preference to wait on the sidelines for better visibility. Maintain Hold rating on the stock with an unchanged target price of Rs664.

CRL letter delays gSpiriva approval by at least six months

The Complete Response Letter (CRL) from the US Food and Drug Administration or US FDA will delay the approval for Lupin’s generic version of Spiriva inhaler by at least six months. Spiriva is a Tiotropium inhaler from Boehringer and registered about US$700m in sales in the US at the innovator’s prices. Lupin is the only generic player in advanced stages of development of this drug and could enjoy a long duration of limited competition upon approval. We believe the product could generate US$75-100m of high-margin revenue for Lupin once it is approved by the regulator.

Base business profitability becomes more critical

With the delay in gSpiriva launch, the profitability of Lupin’s base business has become highly critical to improve margin levels. The company reported single-digit EBITDA margin for the last three quarters. The stock is pricing in a significant rebound in margins to at least mid-teens.

Cut our FY23F earnings estimate but maintain FY24F estimate

We have removed gSpiriva revenue from our FY23F estimate and, accordingly, cut our FY23F core earnings estimate by 30%. However, we maintain our FY24F core earnings estimate as we go by management’s guidance of a potential approval for the drug in 4QFY23F.

Downside limited; upside only after margin delivery

While the valuation is not cheap based on current profitability, we see a limited downside to Lupin’s stock price given the value of the company’s high quality domestic business franchise. However, any upside in the stock price, in our view, will be after margin delivery north of mid-teens, the visibility on which is currently weak.

Will continue to wait on the sidelines

Lupin trades at 49x our revised FY23F and 21x FY24F core earnings estimates. We continue our preference to wait on the sidelines for better visibility of improvement in base business profitability and high-value product upside. We maintain Hold rating on Lupin with an unchanged target price of Rs664, which is 21.6x FY24F core earnings plus cash per share. Faster rebound in base business profitability and value unlocking through corporate actions will be key upside risks. Continued subdued profitability of the base business and further delay in gSpiriva approval will be key downside risks.

Financial Summary	Mar-21A	Mar-22A	Mar-23F	Mar-24F	Mar-25F
Revenue (Rsm)	151,630	164,055	166,485	184,330	203,427
Operating EBITDA (Rsm)	25,669	20,972	19,155	29,659	37,003
Net Profit (Rsm)	12,165	(15,280)	6,965	14,462	19,739
Core EPS (Rs)	26.7	23.3	15.3	31.8	43.4
Core EPS Growth	151.7%	(12.9%)	(34.2%)	107.6%	36.5%
FD Core P/E (x)	24.86	28.55	43.38	20.89	15.31
DPS (Rs)	7.5	10.5	7.5	7.5	8.5
Dividend Yield	1.13%	1.58%	1.13%	1.13%	1.28%
EV/EBITDA (x)	11.36	15.49	17.25	11.16	8.80
P/FCFE (x)	18.90	(21.75)	38.83	22.01	13.27
Net Gearing	(7.7%)	18.3%	22.3%	20.8%	15.0%
P/BV (x)	2.19	2.49	2.44	2.25	2.01
ROE	9.2%	8.2%	5.7%	11.2%	13.8%
% Change In Core EPS Estimates			(27.11%)
InCred Research/Consensus EPS (x)

Figure 1: Core valuation table

	FY21	FY22	FY23F	FY24F	FY25F
Core EPS (Rs)	24.4	19.1	12.6	29.7	41.2
Core EPS growth	227.0%	-22.0%	-33.8%	135.2%	38.9%
Cash per share (Rs)	90.6	42.1	21.0	12.3	9.8
Current core P/E (Rs)	25.4	32.6	49.3	20.9	15.1
Core ROIC	11.7%	9.0%	6.7%	13.1%	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	166,485	184,330	203,427
Gross Profit	98,007	99,242	99,211	113,717	126,105
Operating EBITDA	25,669	20,972	19,155	29,659	37,003
Depreciation And Amortization	(8,874)	(9,510)	(9,428)	(9,700)	(10,000)
Operating EBIT	16,795	11,462	9,727	19,959	27,003
Financial Income/(Expense)	(1,406)	(1,428)	(1,628)	(1,400)	(1,300)
Pre-tax 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	9,738	19,759	26,903
Exceptional Items
Pre-tax Profit	16,751	12,135	9,738	19,759	26,903
Taxation	(4,485)	(1,372)	(2,640)	(5,137)	(6,995)
Exceptional Income - post-tax	13	(25,861)
Profit After Tax	12,279	(15,097)	7,099	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)	6,965	14,462	19,739
Recurring Net Profit	12,152	10,580	6,965	14,462	19,739
Fully Diluted Recurring Net Profit	12,152	10,580	6,965	14,462	19,739

Cash Flow

(Rs mn)	Mar-21A	Mar-22A	Mar-23F	Mar-24F	Mar-25F
EBITDA	25,669	20,972	19,155	29,659	37,003
Cash Flow from Invt. & Assoc.
Change In Working Capital	(1,925)	150	(3,737)	(10,269)	(9,431)
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense
Other Operating Cashflow	3,035	(16,679)	(1,134)	(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	12,645	14,093	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)	(605)	3,093	8,908
Debt Raised/(repaid)	(13,677)	(10,787)	(4,259)	(3,457)	(6,543)
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)	(9,019)	(7,065)	(10,051)
Total Cash Generated	16,803	(22,117)	(9,624)	(3,972)	(1,144)
Free Cashflow To Equity	15,982	(13,888)	7,780	13,728	22,772
Free Cashflow To Firm	31,065	(1,674)	13,667	18,586	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	9,604	5,632	4,488
Total Debtors	44,743	42,619	49,945	55,299	61,028
Inventories	40,920	46,307	34,962	38,709	42,720
Total Other Current Assets	12,855	16,422	38,292	42,396	46,788
Total Current Assets	139,864	124,577	132,803	142,036	155,024
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	26,519	27,841	29,956
Other Current Liabilities	33,722	21,990	32,413	34,028	36,613
Total Current Liabilities	84,361	82,764	96,877	71,868	76,570
Total Long-term Debt	161	3,638	(621)	23,867	17,324
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	8,968	33,457	26,913
Total Provisions
Total Liabilities	97,523	95,992	105,846	105,325	103,483
Shareholders’ Equity	138,031	121,533	123,593	134,487	150,647
Minority Interests	550	687	821	981	1,151
Total Equity	138,581	122,220	124,414	135,467	151,798

Key Ratios

(Rs mn)	Mar-21A	Mar-22A	Mar-23F	Mar-24F	Mar-25F
Revenue Growth	(7.5%)	8.2%	1.5%	10.7%	10.4%
Operating EBITDA Growth	3.7%	(18.3%)	(8.7%)	54.8%	24.8%
Operating EBITDA Margin	16.9%	12.8%	11.5%	16.1%	18.2%
Net Cash Per Share (Rs)	23.53	(49.20)	(61.01)	(62.14)	(50.26)
BVPS (Rs)	303.78	267.47	272.00	295.98	331.54
Gross Interest Cover	11.94	8.03	5.98	14.26	20.77
Effective Tax Rate	26.8%	11.3%	27.1%	26.0%	26.0%
Net Dividend Payout Ratio
Accounts Receivables Days	119.40	97.19	101.47	104.20	104.36
Inventory Days	256.92	245.62	220.46	190.40	192.19
Accounts Payables Days	150.66	121.01	133.87	140.49	136.42
ROIC (%)	8.9%	5.6%	4.5%	8.6%	11.0%
ROCE (%)	9.9%	6.9%	6.0%	12.1%	15.5%
Return On Average Assets	5.5%	5.2%	3.7%	6.7%	8.4%

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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Lupin Ltd