JM Financial is bullish on Lupin has recommended buy rating on the stock with a target price of Rs 1140 in its research report dated October 31, 2017.
JM Financial's research report on Lupin
2QFY18 was the first quarter of sequential earnings growth for Lupin, after 4 consecutive quarters of sequential decline, driven primarily by strong margin performance (EBITDA margin improving by 173bps QoQ to 21.6%), supported by cost optimisation measures and controlled R&D spend. While revenues of INR 39,520mn were broadly in-line with our estimates, EBITDA/PAT of INR 8,531mn/4,550mn beat our est. by 11%/25% due to stronger margin performance. US disappointed yet again with revenues declining by USD 34mn QoQ to USD 204mn (JMFe USD 223mn) mainly on account of volume loss in gGlumetza, base business erosion on account of ClarusOne consolidation and loss of gMinastrin FE exclusivity. We believe that it is early to call out the bottom given the uncertainty on the pace and extent of erosion for metformin franchise and impending impact of consolidation of WBAD and Express Scripts, although the improving launch momentum and double-digit growth in Somerset/Branded business contribution are likely to provide some support to near term earnings. We expect Lupin’s earnings growth trajectory to start gaining traction in FY19 driven by increasing contribution from the complex generics (such as gRanexa and levothyroxine) and specialty (incl. recently acquired Solosec) launches across key markets.
We cut our FY18-20 EPS estimates by 3-4% to account for the erosion in US base business partly offset by improvement in margins. We maintain our BUY rating on the stock and roll forward our estimates to arrive at a Dec’18 TP of INR 1,140.
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