YES Securities' research report on Lupin
Lupin reported a better quarter as margin came ahead of expectation partly aided by PLI grant but mostly owing to a better US margin performance QoQ and growth across other geographies + 46% rise in API business QoQ. Assessing the strength of US business is the key to understand margin trajectory and looking to FY24 reckon there could be known but still important margin levers like 1) Spiriva approval and launch in Sep 2) better US pricing environment (comments of generic cos results thus far points to such a case) 3) lower COGS and 4) domestic business moving out of the shadow of diabetes expiry in H2. We continue to believe the worst of margin woes are behind and while cost control may not be best in class, still reckon opex growth of ~4-5% and controlled R&D should generate mid-teens margin in current year. We presume ~US$60mn of Spiriva based on a presumptive Aug approval; sans Spiriva, margin excitement might prove short lived as cost control and current US profitability (at Q4 level) might not be enough to move margin beyond 11-13%. Our FY24 margin presumes Spiriva approval, and this continues to be a key catalyst.
Outlook
Since competition to Spiriva looks unlikely, risk reward appears favourable; continue to value Lupin at 20x FY25 EPS as next fiscal could prove to be even better for riding Spiriva momentum. Upgrade to BUY in lieu of healthy ~20% upside with marginally revised TP Rs920.
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