Recommendation From Pharmaceutical Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.

Here Is Why

Robust ANDA filings

There is tremendous turbulence in Indian pharmaceutical industry at this time on issues such as compliance of USFDA for manufacturing plants and drugs. The stocks from the industry has corrected and are trading at a discounting level. Buying opportunity is emerging for stocks like Lupin.

Lupin is the fourth largest generic player in the South African Market. The company enjoys leading position in Japan. Currently, Lupin ranks number 3, and is the fastest growing company among the top five companies in the domestic formulation space, registering a strong CAGR of 20 per cent over the last few years. Six of Lupin's products are among the top 300 brands in the country.

In North America, Lupin acquired seven approvals and three new product launches in Q1FY17. It has about 123 products portfolio in the North American market. The company has 336 an Abbreviated New Drug Application (ANDA) filings till date of which 187 have been approved. Lupin has launched five new divisions to cater to high growth therapies and 19 SKUs in Q1FY17.

Lupin has completed acquisition of Gavis in March 2016, which added USD 25 million (Rs 168 crore) to the top line for Q1FY17. The company acquired Shionogi branded portfolio of 21 products for USD 150 million (Rs 1008 crore). Shionogi is the sixth largest generic company having strong presence in central nervous system, cardiovascular, gastroenterology and injectables.

Lupin expects base business in Japan to grow at approximately 10 per cent to 15 per cent on a yearly basis in Kyowa CritiCare (KCC). The company expects to deliver double-digit growth over the remainder of FY2017.

On financial front, Lupin’s top line increased by 11.26 per cent to Rs 14208 crore in FY16 as compared to the previous financial year. The company’s operating profit too rose by 3.7 per cent to Rs 3753 crore in FY16 on yearly basis. However, its bottom line declined by 5.52 per cent to Rs 2271 crore in FY16 as compared to same period in previous fiscal year.

Considering the latest quarter numbers, Lupin’s revenue increased by 40.7 per cent to Rs 4439 crore in Q1FY17 as compared to the same period in the previous financial year. The company’s EBITDA too rose by 40.7 per cent to Rs 1391 crore in Q1FY17 on yearly basis. Its net profit boosted by 55.1 per cent to Rs 882 crore in Q1FY17 as compared to same period in previous fiscal year.

On the segmental revenue front, Lupin has earned 50.74 per cent from North America; 21.59 per cent from India; 12.56 per cent from Asia Pacific region; 5.09 per cent from Europe, Middle East and Africa; 2.52 per cent from Latin America; 0.85 per cent from rest of the world during Q1FY17. The company also has earned 6.65 per cent from API.

On valuation front, share price of Lupin is trading at TTM PE multiple of 25.95x times as compared to industry PE multiple of 27.15x times which is quite lower. Lupin’s PE is trading attractive as compared to peers like Cipla (37.36x), Dr. Reddys Laboratories (33.93x) and Sun Pharmaceutical Industries (29.02x).