lupin

Price target: Rs1,130
Current market price: Rs807

Key points

Lupin has a vast reach in the domestic formulation segment. The company is now focusing on high growth lifestyle segments and with aggressive new launches in FY2006 we expect the revenues from the domestic formulations segment to increase by 33% from Rs455 crore in FY2005 to Rs608 crore in FY2006.
The company has received approvals for eight formulation products from the US Food and Drug Administration (USFDA). As a result of the successful launches in the high-margin US market we expect the revenues to increase from Rs19 crore in FY2005 to Rs165 crore in FY2006 representing a growth of 769%.
The boost in Lupin’s regulated bulk revenues will come in FY2007 as two drugs—Simvastatin and Pravastatin—go off patent during this year having a market size of USD5.5 billion in the USA. Overall, we expect the sale of bulk drugs in advanced markets to increase by 61.7% from FY2006 to FY2007 on the back of the exports of statins.
We expect the consolidated net sales to increase to Rs1,741 crore in FY2007. The foray into the regulated markets and the margin improvement is expected to boost the net profit to Rs230.6 crore in FY2007 at a compounded annual growth rate (CAGR) of 61.8% from FY2005. At the current market price of Rs807, Lupin is trading at 14x its FY2007 earnings estimate. Lupin’s valuation looks very cheap and attractive when compared to its peers.
Keeping in mind this overall growth of Lupin in all the areas like formulations, bulk drugs and research, we initiate a BUY recommendation on Lupin with an 12-month price target of Rs1,130