Lupin - Avoid

Company Background :
Lupin Limited is an India-based transnational pharmaceutical company. The Company is engaged in the producing, developing and marketing of branded and generic formulations, and active pharmaceutical ingredients (APIs).

The Company's brands include Gluconorm, Tonact, Rablet, Budamate, Telekast, Rcinex, Clopitab, Telista, Ramistar and Akt. The Company manufactures products in the therapy areas, such as anti-TB, cardiovascular, anti-asthma, diabetology, central nervous system, gynecology, gastro-intestinal (GI), anti-infective and others.

The Company's subsidiaries include Lupin Pharmaceuticals Inc., Kyowa Pharmaceutical Industry Co., Ltd., Pharma Dynamics (Proprietary) Ltd., Hormosan Pharma GmbH, Multicare Pharmaceuticals Philippines, Inc., Generic Health Pty Ltd., Kyowa CritiCare Co., Ltd., Lupin Holdings B.V., Lupin Atlantis Holdings SA and Lupin Pharma Canada Ltd., among others.

Stock Performance:

During the last 1 year the scrip has given following returns

1 year  -27%
6 months -26%
3 months -28%
1 week -6%

Recommendation :

Avoid till clarity emerges on USFDA front

Raghav

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Pharma Sector - Robust Growth Prospects buy on declines

Pharma companies may put up a strong set of numbers due to robust domestic growth and the global generics opportunity.

The BSE Healthcare index has underperformed the Sensex by about nine percentage points in the September quarter, which is not surprising. As the risk appetite increases among investors, the pharma sector, which is a defensive play, will not do as well as the broader market. However, since March 2009, when the markets were at a low, the pharma index has outperformed the Sensex by 14 percentage points.

According to analysts at Angel Broking, Sun Pharma may post muted sales growth of 2.4 per cent due to lower sales of Protonix, which is now under litigation. On the other hand, Dr Reddy's may surprise positively, as the September 2009 quarter was marred by inventory and goodwill amortisation issues.

Domestic formulations are likely to boost Cipla's top line by 5.5 per cent, but higher wage costs may drag operating profits. Ranbaxy, although struggling with US Food and Drug Administration issues, may see its top line rise two per cent, as Valtrex generics continue driving revenues despite the end of the exclusivity period and competition getting stronger.

Analysts expect Lupin to post 12 per cent growth with strong domestic and US revenues, while Ipca should grow at 14 per cent aided by the anti-malarial segment sales both in India and abroad.

The September quarter saw Sun Pharma completing the Taro acquisition, Ranbaxy getting exclusivity in Aricept and Aurobindo entering into a supply agreement with AstraZeneca. Approvals for generic launches, too, fell in around the same time, with Aurobindo receiving four approvals and Sun winning three.

Going forward, the pharma sector is in good shape. The domestic market is expected to witness 12-15 per cent year-on-year growth, while the global market will grow at five per cent. Being strong contenders in the global generics space, there are tremendous opportunities for Indian pharma companies, as a large number of key drugs will go off-patent over the next five years. Once again, the market has started factoring in the future growth. The healthcare index has gained 5.7 per cent in the past eight trading sessions, while the Sensex has risen just 0.7 per cent.

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Lupin - Buy

Lupin: Healthy growth Investors with a long-term perspective can consider accumulating the Lupin stock, now trading at Rs 590. Steady growth in revenues over the years combined with strong presence in key target markets such as the US, the EU and Japan, besides a healthy pipeline in drug filings, underscore our recommendation. At the current market price, the stock is valued at about 11 times its likely FY-09 per share earnings, at a discount to its peers. Consistent historic growth rates also lend confidence. In the last three years, Lupin has (on a consolidated basis) managed to grow its revenues and earnings at a compounded growth rate of over 29 per cent and 65 per cent respectively. Driven by the renewed focus on generics in markets such as the US and Japan (where it marked its presence through the acquisition of Kyowa), the company is likely to deliver steady growth in future too. That among the Indian generic companies operating in the US, Lupin enjoys the largest share of prescription sales and has the highest per product sales validates our view. That said, its presence in the domestic formulation business too inspires confidence. However, in the light of the recent credit turmoil, the company’s API business has started showing some early signs of a slowdown. That, however, may not hamper its growth prospects significantly, as the incremental growth in future would rely more on its formulation business, primarily in the US and Japan. In terms of risk, however, investors may need to closely monitor the developments on the USFDA front. Last November, the FDA had issued Lupin an inspection report (483) listing 15 inspectional observations. The management, however, has since then responded to the FDA on the concerns that were raised. While this certainly is not as grave as the FDA issue pertaining to Ranbaxy, developments on this front nonetheless will require close monitoring. The closure of the issue, hence, would be the key catalyst to the stock’s movement. SRIVIDHYA SIVAKUMAR businessline 08-03-09 Investment Strategy Now : Our View : The prices have run up in the last week too fast and with this speed it can touch Rs.650. One should not invest at this high price but should start buying around 500 levels for a decent gain over a 12 months period.