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.