ICICI Direct recommended hold rating on Lupin with a target price of Rs 720 in its research report dated November 07, 2019.
ICICI Direct's research report on Lupin
Q2 revenues grew 10.3% YoY to Rs 4359.7 crore (I-direct estimate: Rs 4410.9 crore) due to Rs 144 crore of one-time NCE licensing income and 11.5% YoY growth in domestic formulations to Rs 1341.9 crore (I-direct estimate: Rs 1347.6 crore). EBITDA margins improved 288 bps YoY to 16.8% but were lower than I-direct estimates of 18.5% mainly due to higher employee cost and R&D spend. EBITDA grew 33.2% YoY to Rs 732 crore, below I-direct estimate of Rs 816 crore. Net loss was Rs 127.1 crore against net profit of Rs 266 crore in Q2FY19. Net profit (excluding exceptional items) grew 57.7% YoY to Rs 419.4 crore (I-direct estimate: Rs 314 crore). The delta vis-à-vis EBITDA was mainly due to lower tax outgo (Rs 34.3 crore against Rs 172.9 crore).
However, resolution of warning letter and clearance of official action indicated (OAIs) status on plants may be a near term overhang along with progress on margins front. Also, growth stays lumpy for APAC (mainly Japan). Like other pharma majors, Lupin has also chalked out a product and cost rationalisation drive. The subsequent result could be visible two to three years down the line. We arrive at our target price of Rs 720 based on 20x FY21E EPS of Rs 35.9.
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