Why Emkay prefers Lupin over Cadila

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Why Emkay prefers Lupin over Cadila

Emkay Global Financial Services has come out with its report on Lupin & Cadila. The research firm recommends Lupin over Cadila.

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Emkay Global Financial Services has come out with its report on Lupin & Cadila . The research firm recommends Lupin over Cadila.

Lupin has a superior US & India business:

• In the US, Lupin will outperform Cadila by 700 bps in growth (FY12-14 CAGR - 28% vs. 21%), because of its superior US portfolio led by a large Para-IV pipeline and strong OC product basket. On the other hand Cadila is struggling with USFDA issues and there is no clarity on future ANDA launches
• In the domestic segment, Lupin will outperform Cadila by 300 bps in growth (FY12- 14 CAGR - 15% vs. 12%, ex - Biochem ) because of Lupin's strong concentration in the chronic segment

Lupin's margins and return ratios are getting better:

• Lupin's EBITDA margins will improve by 100 bps to 19.7% in FY13E, whereas that of Cadila will decline by 60 bps to 20.9% in FY13E
• Lupin's ROCE is expected to improve by 290 bps to 27% and Cadila's ROCE is expected to decline by 90 bps to 23% in FY13E

Lupin to command premium valuations:

We believe Lupin will outperform Cadila in earnings growth over FY12-14E because of its strong portfolio in US and focus on chronic segment in domestic market. Lupin has a large Para-IV pipeline and strong OC product basket in the US market. This gives a long term visibility to revenues in US market. In India, Lupin has outperformed the domestic market growth for the last 5 years due to its strong focus on chronic segment. Going forward - we believe Lupin will outperform the Indian market. Both the companies are trading at ~16.6xFY13E EPS. We therefore recommend Lupin over Cadila.

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To read the full report click on the attachment