Lupin Ltd. RESULT UPDATE

Transcription

1 RESULT UPDATE 3rd August nd May 217

2 Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Please vote for us in Asiamoney Brokers Poll 217: pp/asiamoney-brokers-poll-217-vote-now India Equity Institutional Research II Result Update Q1FY18 II 3rd August, 217 Lupin Ltd CMP INR 995 Target 1,169 Potential Upside 17.4% Market Cap (INR Mn) 467,22 Recommendation BUY Sector Pharma Result highlights Lupin reported Q1FY18 revenue of INR 38,68 Mn which degrew 11.7% Y-o-Y and 8.5% Q-o-Q due to price erosion and channel consolidation in the US. The company also had high base in FY17 due to generic Fortamet and Glumetza revenues which has witnessed a sharp decline due to competition coming in. However, the company has witnessed a growing trend in the domestic markets even after GST implementation. EBITDA stood at INR 7,684 Mn and has witnessed an increase in margin which stood 19.9% in Q1 FY18 as against 18.4% in Q4 FY17. Lower R&D and other expenses have resulted in increase of EBITDA margins Q-o-Q. However, EBITDA has decline Y-O-Y basis by 41.3%.R&D expense for the quarter was INR 4.9 bn as against INR 6.7 bn in Q4FY17. PAT for Q1FY18 was INR 4,959 Mn with margins of 9.2% which has increased marginally by 18 bps Q-o-Q and has witnessed decline of 169 bps Y-o-Y. New products to add growth, operational efficiency to continue... 2 MARKET DATA Shares outs (Mn) 452 EquityCap (INR Mn) 93 Mkt Cap (INR Mn) Wk H/L (INR) 1748/116 Volume Avg (3m K) Face Value (INR) 2 Bloomberg Code LPC IN SHARE PRICE PERFORMANCE KEY FINANCIALS Particulars (INR Mn) FY15 FY16 FY17 FY18E FY19E Revenues 1,25,997 1,37,16 1,71,198 1,78,915 2,,385 EBITDA 36,196 37,535 44,932 43,119 5,297 APAT 24,32 22,77 25,575 25,94 29,85 AEPS (Rs) P/E (x) EV/EBITDA(x) ROAE (%) Low growth in Q1FY18 due to price erosion and increasing competition: Lupin has delivered poor performance with a Y-o-Y degrowth of 23% in FY17 due to high base business in FY17 which had higher revenues from its gglumetza and gfortamet drugs which had a 18 days exclusivity in the US. In Q1FY18, The company has faced lot of hurdles such as increasing competitions in its key products in the US, channel consolidation and appreciating Rupee altogether has made a dent in revenues North America s business fell sharply: The North America s business has witnessed declining growth with sales at INR 16,18 Mn in Q1FY18 with a degrowth of 27% Y-o-Y and 16% Q-o-Q due to high base in FY17 and single digit price erosion in the US. The base business in the US grew by 9% excluding the gglumetza and gfortamet effect. The US branded business for the quarter was at USD 23mn which grew 21% Y-o-Y from USD 19 Mn in FY17. The top contributing brand for the company was Methergine which has delivered a Q-o-Q growth of 41%. Sensex Lupin MARKET INFO SENSEX NIFTY 113 Acquisition in Japan boosted the sales: The company has acquired 21 brands from Shionogi for Japan, which led to increase in Japan s revenues from INR 4,567 in Q4FY17 to INR 4,935 in Q1FY18 a Q-o-Q growth of 8%. Going ahead, we expect Japan revenues to deliver a growth of 16% in FY18 due to increasing market penetration of Shionogi brands. Domestic business grew despite GST destocking: The domestic business grew on the back of chronic therapies which contributes 55% to the total domestic sales. Domestic business has seen a growing trend with sales at INR 9,324 registering Q-o-Q growth of 6.1% but a decline growth of 1.8% on Y-o-Y basis. The company was expecting a growth of 15% in the quarter but due to GST destocking the growth rate has come down to 6%. Going ahead, we expect that the domestic business of the company to deliver a growth of 15%. SHARE HOLDING PATTERN (%) Particulars Jun 17 Mar 17 Dec 16 Promoters FIIs DIIs Others Total % 8% PAT CAGR between FY 17 and Revenue CAGR between FY 17 and FY 19E FY 19E

3 INR Mn INR Mn INR Mn India Equity Institutional Research II Result Update Q1FY18 II 3rd August, 217 Muted FY18, but strong growth going forward We expect FY18 will be a muted year for the company due to increase in price erosion in the US, consolidation of channels and delay in new product launches. FY18 will be more challenging for the company due to high base business from gglumetza and gfortamet, intense competition in the US and entry of new players in the market. However, to offset the pressure the company has indicated a pick-up in launch momentum into the next few months. Lupin has planned to launched nearly 3 new drugs in the market in FY18. We believe that from FY19 Lupin will pick up its growth momentum on the back of approvals and launch of limited competition products in the market. The company has a basket of total 154 US ANDA out of which 45 are first to file and 11 are exclusive in nature. The company plans to launch Ranexa, Synthroid in FY19 which will give a boost to sales. The company is developing Enbrel (etarnacept) which is currently in Phase III and Lupin plans to file it in FY19 in Japan and later in Europe. Lupin has an exhaustive pipeline of DPI inhalers and complex generics which has a huge market size. These opportunities will give an escalated growth trend to the company s revenues and will give a boost to the topline in long run. Valuations & Views: We believe in Lupin s growth story led by its unique offerings of specialty drugs and biosimilar. We expect Lupin to deliver robust growth on the back of its exclusive products and complex generics which are limited competition products. Along with the US, the domestic business and RoW will also grow strongly. The company is planning to launch approx 3 drugs which will offset the US pricing pressure. Going ahead, we believe the topline to deliver a Y-o-Y growth of 12% with sales at INR 23,391 mn in FY19 and EBITDA at INR 57,6 with margins at 26%. At CMP of INR 995 the stock is trading at PE of 2.6x at FY17 with EPS of INR 56.6 and EPS of INR 66 in FY19..We recommend BUY rating on the stock and value the stock at 17.7x FY19E EPS of INR 66 with a target price of INR 1,169 indicating 17.4% upside from CMP ,52 33,213 35,558 41,811 44,393 42,95 44,828 42,533 38, % Q1FY16 Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18. Revenue EBITDA Adj PAT EBITDA margin (%) PAT margin(%) US witnessed decline in growth.. along with the RoW revenues ,95 21,886 19,978 21,755 19,7 16,18 14,49 11,96 11, % ,22 3,234 3,739 3,651 3,886 3,442 3,231 4,891 3, % US Sales YoY (%) RoW Sales YoY (%)

4 No. of ANDA INR mn INR mn INR mn % INR mn India Equity Institutional Research II Result Update Q1FY18 II 3rd August, Domestic business saw a sluggish growth 8,851 8,738 8,712 9,912 9,499 8,788 9,324 7,615 9, ,498 Along with the APAC revenues. 5,42 4,317 5,146 5,416 5,52 6,118 5,989 5,61 6% 45% 3% % (5) % Q1FY16 Q3FY16 Q1FY17 Q3FY17 Q1 218 Domestic Sales YoY (%) APAC YOY (%) The R&D spend of the company has been decreased. 8 2% 8, Along with the capex. 16% 6 15% 6, 12% 4 1% 4, 8% 2 5% 2, 4% % % R&D expenses (LHS) as a % of sales (RHS) Capex as a % of sales (RHS) The spend in R&D has resulted in higher product launches and ANDA filings for the past years FY12 FY13 FY14 FY15 FY16 FY17 Cumulative ANDA filings Cumulative ANDA launched

5 India Equity Institutional Research II Result Update Q1FY18 II 3rd August, 217 Q1FY18 Result Snapshot 5 Exhibit 1 Consolidated Result Update (INR Mn) INR Mn Q1FY18 Q4FY17 Q1FY17 QoQ (%) YoY (%) Net Sales 38,68. 41, , % -11.7% Other operating income , % -5.1% Total Income 38, , , % -12.8% Expenditure 31,12. 34, , % -1.% Materials Consumed 12, , , % -3.1% % of sales 32.4% 28.5% 29.5% 13.7% 9.8% Employee Cost 7, ,77. 7, % 1.7% % of sales 18.9% 17.% 16.4% 1.9% 15.2% Other Exp 11, , , % -.2% % of sales 3.2% 38.% 26.7% -2.4% 13.% EBITDA 7, , , % -41.3% EBITDA margin (%) 19.9% 18.4% 29.5% 15bps -961bps Depreciation 2,65.1 2, , % 28.5% EBIT 5,78.4 5, , % -54.1% Other Income % -61.3% Interest expenses % 37.6% E/o expense....%.% PBT 4, , , % -57.1% Tax 1,368. 1, , % -5.% Effective tax rate (%) 27.6% 26.4% 23.7% 4.5% 16.6% PAT 3, , , % -59.3% Share of profit after tax of associate... Minority Interest % 71.% Reported PAT 3,58.5 3,47.4 8, % -59.4% Net Margin (%) 9.3% 8.2% 19.9% 19bps -161bps EPS % -58.2% Key Con-call Highlights: Management expects that there will be high single digit price erosion in the US which will impact the revenues. The pricing pressure in the US and competition from McKesson and Walmart is going to affect the business adversely. The company will maintain its R&D spend to INR 2 Mn i.e approx of INR 5 Mn per quarter in order to grow and fund its ongoing clinical trials. The company plans to do CAPEX of around INR cores in FY18. The launches of FY18 have been postponed to FY19 due to issues in clinical trials. Due to GST destocking the inventory levels has been reduced to 25 days from 45 days. The company expect that the loss in inventory level will be recovered in coming quarters. The company has 154 pending ANDA filings which has a target market size of USD 76 bn. Out of these 154 ANDA, 45 are first to file and 11 are exclusive in nature. The company is developing a biosimilar of Enbrel (Etarnacept) which has market size of USD 25 mn in the international market. Lupin is planning to file it in Japan in FY19. The company expects that Q2FY18 will also be a dip, post that the revenue will start improving. The company low single digit in the topline nad EBITDA margins to be in range of 21% -23% which was earlier guided to be in the range of 25% - 26%.

6 India Equity Institutional Research II Result Update Q1FY18 II 3rd August, Exhibit 2: Income Statement INR Mn FY15 FY16 FY17 FY18E FY19E Total operating income 1,27,7 1,42,85 1,74,943 1,81,599 2,3,391 Op. Expenses 91,54 1,4,55 1,3,12 1,38,48 1,53,94 EBITDA 36,196 37,535 44,932 43,119 5,297 Other Income 2,398 1,877 1,65 1,172 1,172 Depreciation 4,347 4,635 9,122 8,98 9,945 EBIT 34,246 34,777 36,875 35,31 41,524 Interest ,525 1,525 1,357 PBT 34,148 34,33 35,349 33,785 4,166 Tax 9,74 11,536 9,785 8,615 1,283 PAT 24,444 22,795 25,564 25,17 29,884 Minority Adj Pat 24,32 22,77 25,575 25,94 29,85 Exhibit 3 : Balance Sheet INR Mn FY15 FY16 FY17 FY18E FY19E Equity Share Capital Reserves & Surplus 87,842 1,8,943 1,34,73 1,51,219 1,76,412 Total Shareholders Fund 88,741 1,9,844 1,34,976 1,52,123 1,77,315 Minority Interest Non- current liabilities 5,764 6,341 69,546 63,898 58,37 Long term Borrowings 1,679 53,739 56,478 5,83 45,239 Deferred tax liabilities 2,24 2,45 3,949 3,949 3,949 Other LT liabilities & prov 2,61 4,557 9,12 9,12 9,12 Current Liabilities 36,631 53,872 61,25 6,131 59,959 Short-term borrowings 3,692 17,454 23,43 19,587 16,649 Trade payables 19,561 21,918 25,889 27,658 29,78 Other cur liabilities & Prov 13,379 14,5 12,273 12,887 13,531 Total Liabilities 1,31,377 2,24,377 2,66,72 2,76,497 2,95,927 Assets Non- current Assets 53,54 1,26,67 1,46,53 1,42,513 1,4,234 Fixed assets 49,442 1,16,23 1,31,659 1,31,717 1,29,267 Non-current investments ,84 1,192 Deferred tax assets (net) , Long-term loans & adv 2,742 9,73 8,81 8,889 8,951 Other non-current assets 3 Current assets 78,323 97,77 1,19,542 1,33,984 1,55,693 Current investments Trade receivables 26,566 45,498 43,73 42,891 5,58 Inventories 25,35 31,787 36,423 36,273 4,626 Cash & bank balances 4,814 8,379 6,994 21,87 3,128 Short-term loans & adv 3,42 7, Other current assets 18,488 4,734 32,893 33,551 34,222 Total Assets 1,31,377 2,24,377 2,66,72 2,76,497 2,95,927

7 India Equity Institutional Research II Result Update Q1FY18 II 3rd August, 217 Exhibit 4 FY17: Cash flow statement INR Mn FY15 FY16 FY17A FY18E FY19E PBT 34,148 34,33 35,349 39,791 47,493 Depreciation 4,347 4,635 9,122 8,98 9,945 Interest Exp ,525 1,525 1,357 Others CF before W.cap 37,715 39,59 45,997 5,376 58,857 Inc/dec in W.cap ,537-21,412-2,832-1,133 Op CF after W.cap 36,766 7,972 24,585 47,544 48,725 Less Taxes -9,436-11,662-9,785-1,147-12,158 Net CF From Operations 27,33-3,689 14,8 37,397 36,566 Inc/(dec) in F.A + CWIP -8,676-57,152-34,31-9,38-7,495 (Pur)/sale of Investments -6,294-12, others 4,425 CF from Invst Activities -1,545-69,434-35,22-9,137-7,63 Loan Raised/(repaid) ,645 6,82-1,629-9,886 Equity Raised Dividend -1,573-4,55-4,543-4,525-5,441 CF from Fin Activities -1,969 58,126 2,261-15,154-15,328 Net inc /(dec) in cash 14,816-14,998-18,159 13,16 13,636 Others 22 1,929 17, Op. bal of cash 6,66 21,84 8,15 6,994 2,22 Cl. balance of cash 21,84 8,15 6,994 2,22 33,453 Exhibit 5 FY17: Ratio Analysis INR Mn FY15 FY16 FY17A FY18E FY19E EPS CEPS BVPS DPS Payout (%) Valuation (x) P/E P/BV EV/EBITDA Dividend Yield (%) Return ratio (%) EBIDTA Margin PAT Margin ROAE ROACE Leverage Ratios (x) Long Term D/E Net Debt/Equity Debt/EBITDA Interest Coverage Current ratio Growth Ratios (%) Income growth EBITDA growth PAT growth Turnover Ratios F.A Turnover x Inventory Days Payable days

8 India Equity Institutional Research II Result Update Q1FY18 II 3rd August, Date CMP (INR) TP (INR) Recommendation 3-Aug BUY 1-Feb-17 1,495 1,73 BUY 1-Nov-16 1,529 1,769 BUY 1-Aug-16 1,68 1,863 BUY 23-May-16 1,56 1,838 BUY 8-Feb-16 1,819 1,838 HOLD 28-Oct-15 1,945 2,13 ACCUMULATE 14-Oct-15 1,92 1,986 HOLD 24-Jul-15 1,68 1,78 ACCUMULATE 7-Jul-15 1,92 1,774 HOLD 14-May-15 1,684 1,774 HOLD 9-Apr-15 2,9 2,1 HOLD Rating Legend Our Rating Upside Buy More than 15% Accumulate 5% - 15% Hold 5% Reduce -5% Sell Less than -5% CERTIFICATION: I, Vaibhav Chowdhry (B.Com, MBA), research analyst, & Dhara Patwa (BBA,MBA), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. 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