Broking house, IL&FS Investsmart has recommended buy rating on Lupin with target price of Rs 1184.

IL&FS Investsmart report on Lupin:

"Lupin is repositioning itself from a leading player in anti-tuberculosis (TB) segment to a global leader in CVS (Cardiovascular System) and cephalosporins (anti-biotic) segment. The company has invested heavily for developing products in the cephalosporins, prils and statins segment, and for entering new geographies such as the US and Europe. Lupin is now ready to reap the rewards of these moves."

"Aggressive new launches and increased focused on the high-growth, high-margin, lifestyle segments in FY06 are likely to translate into significant financial benefits for the company. Lupin’s revenues from the domestic formulations segment are expected to grow at a 16% CAGR during the next two years – from Rs 6.1 billion in FY06 to Rs 8.2 billion in FY08E. Pick up in sales of the branded formulation, Suprax (Cefixime), are likely to increase from Rs 614 million in FY06 to Rs 801 million in FY08E. Revenues from key products like ceftriaxone, cefprozil, and cefotaxime injection generics are also likely to augment."

"Till date, Lupin has received approvals for the manufacture of thirteen formulation products from the US Food and Drug Administration (USFDA). Following the successful launches (of the thirteen products that received approvals) in the highly regulated US market, we expect Lupin’s revenues to increase from Rs 2.2 billion in FY06 to Rs 4.0 billion in FY08E, representing a 34 %CAGR."

"Operating margins will significantly improve from 13.2% in FY06 to 16.8% in FY08E, driven by robust sales in the regulated formulation markets such as the US and the European Union."

"We expect Lupin’s earnings to report a 31% CAGR between FY06- FY08E, with EPS improving from Rs 43.2 in FY06 to Rs 55.5 in FY07E. An increase in margins is expected to improve EPS further to Rs 74.0 in FY08E. Lupin is quoting at 16.8x FY07E and 12.6x FY08E. We initiate coverage on the stock with a ‘buy’ recommendation and target price of Rs 1184."

Key risks:

Execution risk: During the last four years, Lupin has been consistently filing dossiers for regulatory approvals. This exposes the company to the risks of delay in getting approvals; though there have been cases when Lupin has received approvals within the stipulated period of nine months, a delay of even a couple of months may act to the detriment of Lupin’s future plans."

Higher price erosions: We believe that one of the major reasons for Lupin's turnaround is that, unlike the generic market, the Cephalosporin market is not expected to face severe competition. As a result, the price erosions will be much less than that anticipated earlier. However, the entry of new players that deploy competitive pricing strategies may partially erode Lupin’s margins."