Lupin Ltd. RESULT UPDATE 31 st October 2017

RESULT UPDATE 31 st October 217 22 nd May 217

Oct-14 Apr-15 Oct-15 Apr-16 Oct-16 Apr-17 Oct-17 India Equity Institutional Research II Result Update Q2FY18 II 31st October, 217 Lupin Ltd CMP INR 127 Target 1,187 Potential Upside 15.7% New products to add growth, operational efficiency to continue... Market Cap (INR Mn) 464,335 Recommendation BUY Sector Pharma 2 Result highlights Lupin reported Q2FY18 revenue of INR 38,741 Mn which degrew 8% Y-o-Y and grew by 1.8% Q-o-Q. Strong growth from domestic and Ex-US business led to spurt in revenues. However, the company has witnessed decline of 15% Q-o-Q in its US business with sales at INR 13,611 VS INR 16,81 in Q1FY18. EBITDA stood at INR 8,53 Mn and has witnessed an increase in margin which stood 21.6% in Q2 FY18 as against 18.3% in Q1 FY18. Lower R&D and other expenses have resulted increase in EBITDA margins Q-o-Q. However, EBITDA has decline Y-O-Y on basis by 46 bps. PAT for Q2FY18 was INR 4,528 Mn with margins of 11.4% which has increased by 159 bps Q-o-Q and has witnessed decline of 914 bps y-o-y. Higher other income which had forex gain of INR 42 crores led to spurt in PAT margins. Lupin has 49 first to file (FTF) out of which 25 are exclusives MARKET DATA Shares outs (Mn) 452 EquityCap (INR Mn) 94 Mkt Cap (INR Mn) 464335 52 Wk H/L (INR) 1572/92 Volume Avg (3m K) 224. Face Value (INR) 2 Bloomberg Code LPC IN SHARE PRICE PERFORMANCE 155 125 95 65 Sensex Lupin MARKET INFO SENSEX 33266 NIFTY 1364 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) 53.5 5.4 56.6 55.6 66. P/E (x) 36.4 38.6 2.6 21. 17.7 EV/EBITDA(x) 24.2 25. 13.4 11.6 9.6 ROAE (%) 3.4 22.9 2.9 17.5 18.1 Continued price erosion and competition led to muted growth in Q2FY18 The company has posted muted growth with a marginal growth of 1.8% Q-o-Q and degrowth of 8% Y-O-Y 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. We expect Lupin to post healthy revenues on the back of strong growth from its domestic and its Ex-US business. North America s business continues to see pressure: The North America s business has witnessed declining growth with sales at INR 13,611 Mn in Q2FY18 with a degrowth of 32% Y-o-Y and 15% Q-o-Q due to high base in FY17 and additional competition in Minastrin. The Company launched 5 products in the US market during the quarter making the total to 147 products in the US generics market. Going ahead, we expect the US price erosion to be in range of 8-9% on the base business. The US business will continue to see pressure due to increasing competition, channel consolidation,appreciating Rupee and base business erosion. Japan continues to grow well: The acquired brands from Shionogi performed well which led to increase in Japan s revenues from INR 4,935 in Q1FY18 to INR 4,898 in Q1FY18. 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 strongly post GST: Domestic business of the company has outperformed the industry growth on high single digit and has posted robust sales of INR 11,593 registering Q-o-Q growth of 24.3% and Y-o-Y growth of 16.4%. The company has made additional product launches which has helped to boost the revenues. We expect the domestic business of the company to grow 15% on Y-o-Y basis. SHARE HOLDING PATTERN (%) Particulars Sep 17 Jun 17 Mar 17 Promoters 46.8 46.7 46.69 FIIs 27.69 3.86 31.87 DIIs 12.17 9.56 9.14 Others 13.35 12.88 12.29 Total 1 1 1 8.2% 8% PAT CAGR between FY 17 and Revenue CAGR between FY 17 and FY 19E FY 19E

INR mn % INR Mn INR Mn India Equity Institutional Research II Result Update Q2FY18 II 31st October, 217 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. The domestic and Ex-US business will also grow strongly. 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 152 US ANDA out of which 49 are first to file and 25 are exclusive in nature. The company plans to launch Axiron, hydrocodone, Tamilfu, levothyroxine 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. 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 5,297 with margins at 24.7%. At the CMP of INR 1,27 Lupin is trading at an EPS of INR 66 for FY19E, we recommend BUY rating on the stock, with a target price of INR 1,187 that offers a potential upside of 15.7%. 3 5 4 3 33,213 35,558 41,811 44,393 42,95 44,828 42,533 38,696 39,519 35. 3. 25. 2. 2 1 15. 1. 5. % Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18. Revenue EBITDA Adj PAT EBITDA margin (%) PAT margin(%) Exhibit 1: US witnessed decline in growth.. 25 2 15 1 5 14,49 11,55 21,95 21,755 19,7 21,886 19,978 16,18 13,611 Q2FY16 Q4FY16 Q2FY17 Q4FY17 Q2FY18 US Sales YoY (%) 1 8 6 4 2 (2) (4) Exhibit 2: But strong growth in domestic business was seen. 6 5 4 3 2 1 3,234 3,739 3,651 3,442 3,231 3,886 4,22 4,891 3,944 Q1FY16 Q3FY16 Q1FY17 Q3FY17 Q1FY18 RoW Sales YoY (%) 6. 4. % 2.. -2.

No. of ANDA INR mn INR mn INR mn % INR mn India Equity Institutional Research II Result Update Q2FY18 II 31st October, 217 4 Exhibit 3: RoW business saw a growing trend 12 9,912 9,499 8,738 8,788 9,324 9 7,615 9,858 8,851 8,712 6 3 2 15 1 5 Exhibit 4: Along with the APAC revenues. 7 6,118 6,357 5,416 5,989 5,52 525 5,42 4,317 5,61 5,146 35 175 6% 45% 3% 15% Q1FY16 Q3FY16 Q1FY17 Q3FY17 Q1FY18 (5) % Q2FY16 Q4FY16 Q2FY17 Q4FY17 Q2 218 APAC YOY (%) Domestic Sales YoY (%) Exhibit 5: The R&D spend of the company has been decreased Exhibit 6: Along with the capex. 8 2% 8, 32% 6 15% 6, 24% 4 1% 4, 16% 2 5% 2, 8% Q2FY16 Q4FY16 Q2FY17 Q4FY17 Q2FY18 % % Q2FY16 Q4FY16 Q2FY17 Q4FY17 Q2FY18 R&D expenses (LHS) as a % of sales (RHS) Capex as a % of sales (RHS) Exhibit 7: The spend in R&D has resulted in higher product launches and ANDA filings for the past years 4 343 368 3 2 173 176 196 21 146 18 1 42 46 62 77 FY12 FY13 FY14 FY15 FY16 FY17 Cumulative ANDA filings Cumulative ANDA launched

India Equity Institutional Research II Result Update Q2FY18 II 31st October, 217 Q2FY18 Result Snapshot 5 Exhibit 8: Consolidated Result Update (INR Mn) INR Mn Q2FY18 Q1FY18 Q2FY17 QoQ (%) YoY (%) Net Sales 38,741. 38,68. 42,111.8 1.8% -8.% Other operating income 778. 627.5 793.3 24.% -1.9% Total Income 39,519. 38,695.5 42,95.1 2.1% -7.9% Expenditure 3,988.9 31,12. 32,624.4 -.1% -5.% Materials Consumed 12,865.3 12,326. 12,428.5 4.4% 3.5% % of sales 33.2% 32.4% 29.5% 2.6% 12.5% Employee Cost 7,249.6 7,179.7 7,123.9 1.% 1.8% % of sales 18.7% 18.9% 16.9% -.8% 1.6% Other Exp 1,874. 11,56.3 13,72. -5.5% -16.8% % of sales 28.1% 3.2% 31.% -7.1% -9.6% EBITDA 8,53.1 7,683.5 1,28.7 11.% -17.% EBITDA margin (%) 21.6% 19.9% 24.% 173bps -238bps Depreciation 2,721.8 2,65.1 2,111.9 4.5% 28.9% EBIT 5,88.3 5,78.4 8,168.8 14.4% -28.9% Other Income 74.4 319.7 271.1 131.6% 173.1% Interest expenses 479.2 439. 263. 9.2% 82.2% E/o expense....%.% PBT 6,69.5 4,959.1 8,176.9 22.4% -25.8% Tax 1,54.6 1,368. 1,589.4 12.6% -3.1% Effective tax rate (%) 25.4% 27.6% 19.4% -8.% 3.6% PAT 4,528.9 3,591.1 6,587.5 26.1% -31.3% Share of profit after tax of associate... Minority Interest 18.6 1.6 6.2 75.5% 2.% Reported PAT 4,51.3 3,58.5 6,581.3 26.% -31.5% Net Margin (%) 11.4% 9.3% 15.3% 216bps -393bps EPS 1.1 7.5 14. 35.1% -28.1% 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. However, the entry of Amazon will be a positive surprise as the number of buyers will increase. 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 has cut down its R&D spend without compromising its ongoing trials. The company expects India business to grow at 15% on Y-o-Y basis. 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. Lupin is developing a biosimilar of Enbrel (Etarnacept) which has market size of USD 25 mn in the international market. The company is planning to file it in Japan in FY19. It also plans to start the clinical trial and pivotal studies of Advair an inhaler which is in phase III trial in the end of FY18. The company remain intact with guidance of EBITDA margins to be in the range of 21-23% in Q3 and Q4 of FY18.

India Equity Institutional Research II Result Update Q2FY18 II 31st October, 217 6 Exhibit 9: 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 98 446 1,525 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 412 88 72 75 79 Adj Pat 24,32 22,77 25,575 25,94 29,85 Exhibit 1 : Balance Sheet INR Mn FY15 FY16 FY17 FY18E FY19E Equity Share Capital 899 91 93 93 93 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 241 321 345 345 345 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 25 75 985 1,84 1,192 Deferred tax assets (net) 842 86 5,76 824 824 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 7,372 159 182 21 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

India Equity Institutional Research II Result Update Q2FY18 II 31st October, 217 Exhibit 11: Cash flow statement INR Mn FY15 FY16 FY17 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 98 446 1,525 1,525 1,357 Others -878 97 79 62 CF before W.cap 37,715 39,59 45,997 5,376 58,857 Inc/dec in W.cap -949-31,537-21,412-2,832-1,133 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 -6,294-12,282-91 -99-18 others 4,425 CF from Invst Activities -1,545-69,434-35,22-9,137-7,63 Loan Raised/(repaid) -89 61,645 6,82-1,629-9,886 Equity Raised 413 536 2 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 17,138-79 -24 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 12: Ratio Analysis INR Mn FY15 FY16 FY17 FY18E FY19E EPS 53.5 5.4 56.6 55.6 66. CEPS 63.1 6.7 76.8 75.5 88. BVPS 197.4 243.8 298.9 336.9 392.6 DPS 9. 9. 9.9 8.4 1. Payout (%) 16.9 17.9 17.6 15.1 15.2 Valuation (x) P/E 36.4 38.6 2.6 21. 17.7 P/BV 9.9 8. 3.9 3.5 3. EV/EBITDA 24.2 25. 13.4 11.6 9.6 Dividend Yield (%).5.5.9.7.9 Return ratio (%) EBIDTA Margin 28.3 26.4 25.7 23.7 24.7 PAT Margin 18.8 16. 14.6 13.8 14.7 ROAE 3.4 22.9 2.9 17.5 18.1 ROACE 38.2 24.3 17.7 15.2 17. Leverage Ratios (x) Long Term D/E..5.4.3.3 Net Debt/Equity.1.6.6.3.2 Debt/EBITDA.1 1.9 1.8 1.6 1.2 Interest Coverage 349.1 77.9 24.2 23.2 3.6 Current ratio 2.4 2.7 3.1 3.3 3.6 Growth Ratios (%) Income growth 13.1 11.3 23.1 3.8 12. EBITDA growth 2.5 3.7 19.7-4. 16.6 PAT growth 3.9-5.5 12.6-1.9 18.8 Turnover Ratios F.A Turnover x 2.5 1.6 1.4 1.4 1.4 Inventory Days 67 76 73 74 7 Payable days 74 96 94 88 85 7

India Equity Institutional Research II Result Update Q2FY18 II 31st October, 217 Date CMP (INR) TP (INR) Recommendation 31-Oct-17 127 1187 BUY 3-Aug-17 995 1169 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 Our Rating Rating Legend Upside Buy More than 15% Accumulate 5% - 15% Hold 5% Reduce -5% Sell Less than -5% 8 CERTIFICATION: We, Vaibhav Chowdhry (B.Com, MBA), research analyst and 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. 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