For 2QFY2016, Lupin posted a poor set of numbers, with the OPM coming in
lower than expected, and consequently the net profit as well. The company
posted a 2.0% growth in sales to Rs3,178cr V/s Rs3,272cr estimated, mainly driven
by the European markets. On the operating front, the Gross margin came in at
64.5% V/s 65.7% expected. Further, a 19.4% yoy and 36.2% yoy rise in the Staff
cost and R&D expenditure led the OPM to come in at 16.6% V/s 24.6% expected
and V/s 24.9% in 2QFY2015. Thus, the net profit came in at Rs408.5cr V/s
Rs578.6cr expected and V/s Rs630.0cr in 2QFY2015, a yoy dip of 35.1%. We
maintain our Neutral stance on the stock.
Below expectation numbers: The company posted a 2.0% yoy growth in sales to
Rs3,178cr V/s Rs3,272cr estimated, mainly driven by European markets. Its key
market US (Rs1,155cr), posted a dip of 9.2% yoy, on account of slow pace of
approvals. The company launched 4 products in the US during the period. The
company expects US sales to get normalized by 4QFY2016. Other key markets:
India, Europe, Japan, South Africa and ROW, posted a growth of 9.4%, 32.2%, –
6.5%, -5.6% and 52.9% yoy, respectively. On the operating front, the Gross
margin came in at 64.5% V/s 65.7% expected. Further, a 19.4% and 36.2% rise
in Staff cost and R&D expenditure led the OPM to come in at 16.6% V/s 24.6%
expected and V/s 24.9% in 2QFY2015. Thus, the net profit came in at Rs408.5cr V/s
Rs578.6cr expected and V/s Rs630.0cr in 2QFY2015, a yoy dip of 35.1%.
Outlook and valuation: We expect Lupin to post a CAGR of 14.6% in net sales
to Rs16,561cr and earnings to report a 13.1% CAGR to Rs68.3/share over
FY2015–17E. Currently, the stock is trading at 36.8x and 27.1x its FY2016E
and FY2017E earnings, respectively. We remain Neutral on the stock.
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