Q1 in line; Key markets lack positive surprises We believe that high concentration of revenues from key drugs such as gRanexa and Levothyroxin may be short-lived, given that FDA’s newstrategy of faster approvals led to reduce the longevity of complex genericsto few months. LPC’s dependence on fewer generics for its growth in USwould like to continue and render its risk-return matrix unfavorable. While R&D is guided to be limited at 10% of sales, there are possibilities of higher R&D costs due to larger clinical trials of inhalers, complex injectables and specialty products in US. We maintain ‘REDUCE’ rating and TP at Rs730.
We downgrade our revenue estimates for FY20E/FY21E by 3.7%/1.5% respectively on account of downgrade in US, Europe and other markets. We upgrade our EBITDA margin by 20 bps /80 bps to 18.9%/20% for FY20E /FY21E due to lower staff expenses, other expenses and R & D. We downgrade our EPS estimates by 8.2% for FY20E to Rs 28.3 and broadly maintain our EPS estimates for FY21E at Rs 41.1. We maintain our HOLD rating on the stock with a price target of Rs 861 based on 21x FY21E.
Outlook and valuation: Limited downside; maintain ‘BUY’ The stock’s current valuation of 17.5x FY21E EPS – amid depressed earnings – offers an attractive entry in our view. Encouraging respiratory and biosimilar franchise may unlock value in the long run. We maintain ‘BUY/SP’ with a TP of INR900.
We maintain a BUY on LPC following in line operational performance in 4QFY19. Our TP is revised at Rs 930/sh (22x FY21E EPS) following a 10% cut in our FY21E EPS to account for higher tax and slower ramp up in Solosec.Despite being marred by repeated US FDA issues, LPC’s visible levers for both revenue and profitability help maintain our positive stance. India franchise, valued at ~Rs 650/sh, continues to protect the downside risk.
We cut our FY20/21E estimates by 14-15% as we trim our EBIDTA margins to 15% vs 17% earlier due to weak consumption demand outlook in the near term. IGPL with 53,000MT capacities coming on stream by end of CY19 is set to be the third largest PAN player globally. Maintain BUY with a PT of Rs477 (Rs530 earlier) as we value IGPL at 6x EV/E or 10x PER FY21E. Maintain Buy
According to the management’s assertion, the macro situation in the USgenerics space is on the mend with overall price erosion stabilising at low single digit. For FY20, it has guided for 20+ launches including key launches. However, the resolution of warning letter and clearance of Official Action Indicated (OAIs) status on plants could be a near term overhang along with progress on the margins front. Growth in India remains consistent but remains lumpy for APAC (mainly Japan). Like other pharma majors, Lupin has also chalked out a product and cost rationalisation drive. The result of this drive could be visible two to three years down the line. We arrive at our target price of | 810 based on 20x FY21E EPS of Rs 40.4.
We downgrade our revenue estimates by 2.8 %/1.1% for FY20E/FY21E on account of downgrade in India, US and API. We downgrade our EBITDA margin by 120 bps /70 bps for FY20E /FY21E due to higher staff cost, overheads and R & D. We downgrade our EPS by 20.9%/4.5% to Rs 30.8/ Rs 41 for FY20E/FY21E respectively. We downgrade our price target to Rs 861 based on 21x FY20E and maintain our HOLD rating on the stock.
Cutting down our earnings estimates by 35.9%/28.6% for FY20E and FY21E to factor in lower than expected 4QFY19, USFDA regulatory concerns and higher tax rates. We downgrade our recommendation to Reduce from earlier HOLD recommendation with a revised Target Price of Rs715 (from Rs803 earlier).