Lupin Ltd.

BUY
December 20, 2011 Market Data
Sector Market Cap (Rs cr) Beta O/S shares (m) Free Float (m) 52-wk HI/LO (INR) Avg 12m Vol (000) Face Value (INR) Bloomberg Reuters Pharmaceuticals & Drugs 19060 0.52 446.6 237 495/363 42 2 LPC IN LUPN.BO

CMP: ` 427

Target Price: `500 A High Growth Phase Ahead

Synopsis The company produces a range of generic and branded formulations and APIs. The Companys product basket consists of formulations from Cephalosporins, CVS, CNS, Anti-Asthma, Anti-TB, Diabetology, Dermatology, GI, and other therapy segments. Lupin had launched Metformin ER, a copy of Fortament, an anti-diabetes drug, in the US on September 30. Where Shionogi Inc and Watson Pharma had filed a preliminary injunction motion against Lupin's launch. Lupin Pharmaceuticals Inc has received final approval from USFDA for its ANDA to market its Minocycline hydrochloride extended-release tablets, a generic version of Medicis Pharmaceutical Corp's Solodyn. Lupin's Japanese subsidiary Kyowa Pharmaceutical Industry Co has entered into an agreement with Japanese healthcare provider I'rom Holdings Co to acquire 100% outstanding equity of its unit I'rom Pharmaceutical, a specialty Injectables Company headquartered in Tokyo and reported revenue of 5.36 billion Japanese yen for fiscal ended March 2011. Lupin is looking for acquisitions in Europe and has a kitty of USD 120 million for expansion. During the September quarter ended, the company has reported robust growth of Net Profit of Rs. 2668.70 million increased by 24.11%. Management has guided top-line growth of 20-25% and EBITDA margin of 20%+ for FY2012. We expect Net Sales and PAT of the company are expected to grow at a CAGR of 17% and 18% over 2010 to 2013E respectively. Majority of its earnings comes from US. Its business in Japan, despite being a low margin one, is also boosting the companys revenues. It has also presence in emerging markets like South Africa where it is registering growth of above 25%. This ensures a strong revenue stream regardless of uncertainty in US markets.

Price Performance
1m Absolute Relative (4.9) (2.4) 3m (11.6) 0.3 6m (1.1) 12m (4.8)

(12.2) (18.9)

Price Performance Vs Sensex

Shareholding Pattern

`inCr
Years FY11 FY12E FY13E Net Sales 5832 6660 7800 EBITDA 1199 1390 1640 Net Profit 862 949 1120 EPS 19.33 21.35 25.19 P/E 22.09 20.00 16.95

InvestmentRationale:
2QFY12 Result Update: Lupin reported net sales of `1,742cr, growth of 24.0% yoy. The companys key market, US remained soft during the quarter, registering 15.0% yoy sales growth. On the other hand, Japan, Lupins second most important market, grew by 13.5% yoy and contributed 16% to the companys revenue. On the domestic front, India formulation sales grew by 22.2% yoy to `512.0cr, contributing 29.4% to the companys overall sales. Lupins net profit grew by 24.4% yoy to `267cr, lower growth than Operating Profit growth, because of higher growth in taxations, which grew by 176.8% yoy during the quarter. OPM expanded to 21.4%. On Going Litigation: Generic version of Fortamet 180 days exclusivity partially lost-The District court of Delaware has granted Shionogi Pharma's motion for preliminary injunction on generic Fortamet thereby prohibiting Lupin from further selling the product in US, till the outcome of the case. The good thing is that, the court declined a request to order a recall for Lupins product which is in the market. Further Shionogi and plaintiffs have been asked to post a bond for USD 15 million in the interim. We expect this injunction to lead to loss of Lupin's 180-days exclusivity. However, Lupin had partially monetised the opportunity by filling the channels in the two weeks of October 2011 at-risk launch. Further, if Lupin is able to secure favourable judgement in the case then it would receive USD15mn from Shionogi Pharma as part of compensation. Launch of pharma products and US FDA Approvals: Generic KEPPRA XR Tablets Authorized Generic of Femcon Fe Chewable tablets in the U.S. Oral Contraceptive Watsons NOR-QD tablets Generic KEPPRA Oral Solution 100 mg / mL Levonorgestrel and Ethinyl Estradiol Tablets 0.1 mg /0.02 mg and Ethinyl Estradiol Tablets 0.01 mg Tramadol Hydrochloride ER tablets

Entering in Japan territory, which is the second largest Pharma market, would generate earnings visibility for the company. The company revenues and Net profit for this FY11 grew 19.5%, 26.5% lower than 26%, 36% in FY10 respectively. However in the first half of the current fiscal, the company logged sequential improvement in performance. Lupins future prospects look good. A pipeline of limited competition drugs and ther recent foray into oral contraceptives is likely to be the growth driver for the company in the US. And through its recent acquisition of Irom Pharma in Japan, the company has forayed into the hospital generics segment. Lupin has strong presence in US-OC, Domestic market (India) and increasing presence in the chronic space and Japan with good no of market share. Further company is scouting for more acquisition and joint venture across region to increase market share. The stock is trading at 20.00x FY12E and 16.95x FY13E earnings. We expect strong growth in the API and generic space over the next few years. We are positive on the stock and rate 'BUY' with a target price of `500.

P/L(Consolidated) (`inCrs) GrossSales Less:ExciseDuty NetSales %chng Increase/DecreaseinStock RawMaterialConsumed Power&FuelCost EmployeeCost OtherManufacturingExpenses GeneralandAdministrationExpenses SellingandDistributionExpenses MiscellaneousExpenses TotalExpenditure EBITDA %ofNetSales Depreciation EBIT %ofNetSales Interest OtherIncome PBDT ProvisionforTax ProfitAfterTax MinorityInterest ConsolidatedNetProfit %ofNetSales EquityDividend% AdjustedEPS %chng

Mar11 5867.4 35.4 5832.0 19.70 86.3 2147.3 205.5 722.4 597.8 367.1 544.3 142.9 4641.0 1066.0 18.70 171.2 895.0 15.70 32.5 8.9 996.0 116.9 879.4 14.8 862.6 15.10 150.00 19.33 26.1

Mar10 4898.1 27.3 4870.8 26.20 1.9 1823.2 154.7 550. 500.1 292.4 447.0 121.5 3886.9 854.0 18.00 123.9 730.0 15.40 38.5 14.2 836.0 136.0 699.7 11.7 681.6 14.40 135.00 15.33 26.6

Mar09 3823.8 47.9 3775.9 34.40 67.3 1671.4 139.1 474.2 261.3 192.8 354.5 101.4 3127.4 648.0 17.20 88.0 560.0 14.80 49.9 95.4 606.0 98.3 507.7 2.9 501.5 13.30 125.00 12.11 21.7

Mar08 2773.0 66.6 2706.4 33.40 193.1 1377.0 112.9 297.3 178.6 168.7 236.4 92.8 2270.5 436.0 16.10 64.7 371.0 13.70 37.4 206.5 540.0 131.8 408.4 0.1 408.3 15.10 100.00 9.95 29.5

P/LQuarterly (`inCrs) NetSales Otheroperating income NetSales&Other OperatingIncome TotalExpenditure PBIDT(ExclOI) OtherIncome OperatingProfit Interest PBDT Depreciation PBT Tax ProfitAfterTax MinorityInterest ConsolidatedNet Profit DilutedEPSafter ExtraordinaryItems DESCRIPTION EBIDTM(%) PreTaxMargin(%) PATM(%) ROE(%) ROCE(%) NetSalesGrowth(%) CoreEBITDAGrowth(%) EBITGrowth(%) PATGrowth(%) EPSGrowth(%) TotalDebt/Equity(x)

Sep11 1741.7 30.7 1772.4 1368.4 404.0 1.6 405.7 6.6 399.0 52.2 346.8 75.1 271.8 4.9 266.9 5.95

Sep10 1409.4 24.6 1434.0 1135.3 298.7 1.4 300.1 8.8 291.3 43.5 247.8 27.1 220.7 5.7 215.0 4.80

Var% 23.6 25.0 23.6 20.5 35.3 15.7 35.2 24.1 37.0 20.0 40.0 176.8 23.1 13.9 24.1 23.96

Jun11 1543.2 24.6 1567.7 1273.4 294.4 1.2 295.5 5.8 289.8 47.1 242.6 28.6 214.0 3.9 210.1 4.69

Var% 12.9 25.1 13.1 7.5 37.3 37.3 37.3 15.1 37.7 10.7 43.0 162.4 27.0 23.9 27.0 26.87

KeyFinancials(Consolidated)
Mar11 20.45 16.98 14.99 30.08 25.01 19.73 20.23 17.69 25.69 74.78 0.35 2.41 1.58 31.69 Mar11 996.3 197.6 151.0 1042.9 245.9 796.9 431.5 160.5 204.9 198.0 418.7 Mar10 20.38 17.06 14.28 35.05 27.34 29.00 34.17 33.28 37.80 26.56 0.44 2.33 1.52 22.71 Mar10 835.7 144.3 136.6 843.4 167.0 676.4 680.2 136.1 132.4 68.1 198.0 Mar09 19.45 15.85 13.28 37.55 25.45 39.52 15.82 13.56 24.32 21.75 0.86 1.83 1.05 13.15 Mar09 606.0 144.2 173.9 576.4 106.8 469.5 509.6 167.2 207.2 270.7 68.1 Mar08 23.16 19.48 14.73 37.96 27.31 34.40 30.74 29.89 32.33 29.50 0.94 2.74 1.68 15.46 Mar08 540.2 86.2 258.9 367.5 109.0 258.5 491.8 82.0 151.3 385.7 270.7

BalanceSheet(`inCrs) SOURCESOFFUNDS: ShareCapital TotalReserves Shareholder'sFunds MinorityInterest SecuredLoans UnsecuredLoans TotalDebts TotalLiabilities APPLICATIONOFFUNDS: NetBlock CapitalWorkinProgress Investments TotalCurrentAssets Less:CurrentLiabilitiesandProvisions NetCurrentAssets TotalAssets 2056.8 519.0 3.2 3496.7 1451.8 2044.9 4495.0 89.2 3190.6 3281.1 51.5 784.1 378.3 1162.4 4495.0 1906.2 348.8 26.4 2775.5 1189.3 1586.2 3733.2 1518.6 224.0 21.6 2230.9 1216.2 1014.7 2662.3 1203.4 96.4 5.8 2044.1 747.0 1297.1 2492.0 Mar11 88.9 2478.4 2567.8 25.5 872.2 267.6 1139.9 3733.2 82.8 1341.9 1424.8 14.3 756.9 466.4 1223.3 2662.3 82.1 1197.6 1279.7 9.5 708.1 494.8 1202.9 2492.0 Mar10 Mar09 Mar08

CurrentRatio(x) QuickRatio(x) InterestCover(x) CashFlow(Consolidated) (`inCrs) ProfitBeforeTax Adjustment ChangesInworking Capital CashFlowafterchangesin WorkingCapital TaxPaid CashFromOperating Activities CashFlowfromInvesting Activities CashfromFinancing Activities NetCashInflow/Outflow OpeningCash&Cash Equivalents ClosingCash&Cash Equivalent

Research Desk.. 022-40324317/366

Disclaimer This report is for the personal information of the authorized recipient and does not construe to be any investment, legal or taxation advice to you. SSBPL is not soliciting any action based upon it. This report is not for public distribution and has been furnished to you solely for your information and should not be reproduced or redistributed to any other person in any form. The report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon such. SSBPL or any of its affiliates or employees shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. SSBPL or any of its affiliates or employees do not provide, at any time, any express or implied warranty of any kind, regarding any matter pertaining to this report, including without limitation the implied warranties of merchantability, fitness for a particular purpose, and non-infringement. The recipients of this report should rely on their own investigations. SSBPL and/or its Group Companies, their Directors, affiliates and/or employees may have interests/ positions, financial or otherwise in the securities/commodities and other investment products mentioned in this report.