Companies & Sectors
Lupin pushes into generic opportunities in the US pharmaceutical market

The US was a key contributor to the overall performance on the back of a strong flu season and the Tricor launch for pharma company Lupin, says Nomura Equity Research

Pharmaceutical major Lupin’s market strategy responds to generic opportunities in the US, where it is pursuing niche and limited competition opportunities; the rise in medicine consumption in India; and the potential rise in generic opportunities in Japan. Lupin is the largest Indian company in Japan. These observations have been made by analysts from Nomura Equity Research.


According to Nomura, in the third quarter of FY13, Lupin’s EBITDA was 2% ahead of the brokerage’s estimates. The US was a key contributor to the overall performance on the back of a strong flu season and the Tricor launch. EBITDA margin was 100 basis points (bps) higher than the Nomura estimate and is at a multi-quarter high. Net earnings at Rs3.35 billion came in 12% lower than Nomura’s estimate on a higher tax rate.


Lupin’s management expects to continue to deliver 20%-25% revenue growth with margin expansion, which is higher than Nomura’s current estimate. Nomura believes that US generics can continue to drive an earnings upgrade and compensate for the potential loss of the Antara exclusivity. In India, growth slowed to 14% year-on-year in the reporting quarter. Lupin expects to sustain growth at 18%-19% in future.


For retail investors and fund managers in the Indian stock markets, Nomura has a ‘Buy’ recommendation with a target price of Rs705.


The third quarter performance of Lupin in FY13 was good as it reported sales at Rs24.66 billion. The company’s EBITDA stood at Rs6.04 billion. The EBITDA includes forex loss of Rs610 million on account of cash flow hedge loss and MTM (mark-to-market) translation loss, particularly on inventory in Japan. The company also incurred one-time GDUFA (generic drug user fee amendments) fees of Rs180 million during the quarter. During the quarter, Lupin had withdrawn 16 low potential ANDAs (abbreviated new drug applications). EBITDA margin (ex other operating income) of 23.1% was 100 bps ahead of Nomura’s estimate. Net profit was lower at Rs3.35 billion was 12% lower than estimated, primarily on the higher tax rate.


Key takeaways from the 3QFY13 conference call for Lupin are given below:

  1. Strong flu season, Tricor launch drives US performance
  2. Antara’s generic competition likely in the near term; the company is putting in place a commercial strategy to hold on to a large market share
  3. Even ex-Antara US brand business is highly profitable; the company continues to search for assets in the branded space; Suprax drop approval is a possibility in Q4FY13F
  4. Interesting low competition opportunities in the generic space may potentially present upsides
  5. India formulation business slows; management expects 18%-19% growth going forward
  6. Japan: Making progress towards integration of operations with India; vertical integration remains key

Finally, Nomura estimates that over the next 18 months, 10%-15% of the Japan market volume may be produced from India. Currently, Lupin has approval for three formulations for launch in Japan from its Indian plants.


Sensex, Nifty in a clear short-term downtrend: Friday Closing Report

While the market trend is down, the Nifty’s support is at around 5,950

The market closed lower on a fall in India’s manufacturing output in January and weak corporate results of Bharti Airtel and BHEL, among others. While the market trend is down, the Nifty is expected to find support at around 5,950. The National Stock Exchange (NSE) reported a volume of 75.87 crore shares and advance-decline ratio of 649:865.


The market opened with small gains despite weak global cues. The US markets closed lower overnight on a clutch of subdued corporate earning reports and a rise in weekly jobless claims. Markets in Asia were mixed in morning trade as China’s official purchase managers’ index (PMI) eased to 50.4 in January.


The Nifty opened six points up at 6041 and the Sensex started the day at 19,707, a rise of 12 points over its previous close. As seen in the past few days, the market hit its high in early trade. At the highs, the Nifty touched 6,053 and the Sensex went up to 19,667.


However, profit booking at higher levels saw the indices inching lower as trade progressed. The selling resulted in the market moving into the negative in late morning trade. Dismal third quarter results from telecom services major Bharti Airtel and manufacturing output data for January coming in at a three-month low pushed the market lower in noon trade.


Bharti Airtel posted a lower-than-expected third quarter net profit of Rs284 crore. The profit which fell for the twelfth quarter in a row is down a whopping 72% compared Rs1,011 crore in the same period last year.


The HSBC India Manufacturing Purchasing Managers’ Index (PMI)—a measure of factory production—stood at 53.2 in January, after touching a six-month high level of 54.7 in December. It stood at 53.7 in November.


Adding to the investors’ woes, oil minister Veerappa Moily announced that diesel prices will be hiked by 40-50 paise per litre every month till losses on the nation’s most used fuel are completely wiped out.


Selling in banking, IT, capital goods and technology stocks kept the indices firmly in the red in post-noon trade. A positive opening of the European markets was not of any help as the domestic benchmarks continued their southward journey.


The market touched the low-point of the day in the last half hour of the trading session. At the lows, the Nifty fell to 5,983 and the Sensex dropped to 19,736. A small recovery at the fag-end of the day helped the market settle off the lows, albeit in the red and down for the second day in a row.


The Nifty closed at 5,999, down 36 points (0.59%) and the Sensex declined 114 points (0.57%) to settle at 19,781.


Among the broader indices, the BSE Mid-cap index shed 0.05% and the BSE Small-cap index declined 0.25%.


The top sectoral gainers were BSE Consumer Durables (up 1.77%); BSE Healthcare (up 0.78%); BSE Fast Moving Consumer Goods (up 0.21%); BSE Oil & Gas (up 0.17%) and BSE Power (up 0.06%). The main losers were BSE Realty (down 1.16%); BSE Auto (down 0.98%); BSE Bankex (down 0.79%); BSE Metal (down 0.78%) and BSE TECk (down 0.63%).


Twelve of the 30 stocks on the Sensex closed in the positive. The chief gainers were Maruti Suzuki (up 1.65%); Cipla (up 1.58%); Dr Reddy’s Laboratories (up 1.48%); Tata Power (up 1.43%) and Bajaj Auto (up 1.26%). The key losers were Tata Motors (down 4.36%); Bharti Airtel (down 2.62%); ONGC (down 2.12%); Hindalco Industries (down 1.99%) and Sterlite Industries (down 1.71%).


The top two A Group gainers on the BSE were—Essar Oil (up 7.30%) and GMR Infrastructure (up 6.88%).

The top two A Group losers on the BSE were—Corporation Bank (down 6.21%) and Tata Motors (down 4.36%).           


The top two B Group gainers on the BSE were—Valuemart Info Technologies (up 20%) and BS (up 16.81%).

The top two B Group losers on the BSE were—Commercial Engineers & Body Builders Company (down 19.09%); and ANG Industries (down 16.67%).


Out of the 50 stocks listed on the Nifty, 20stocks settled in the positive. The major gainers were BPCL (up 2.96%); Cipla (up 1.95%); Bajaj Auto (up 1.47%); Maruti Suzuki (up 1.46%) and Tata Power (up 1.43%). The chief losers were Jaiprakash Associates (down 4.14%); DLF (down 3.60%); Bharti Airtel (down 3.24%); Ambuja Cements (down 2.84%) and Hindalco Ind (down 2.54%).


Markets in Asia settled mixed as China’s official PMI came in lower last month. However, a private survey by HSBC Market showed that growth in China's manufacturing sector hit a two-year high in January.


The Shanghai Composite surged 1.41%; the Jakarta Composite climbed 0.635; the Nikkei 225 advanced 0.47%; the Straits Times gained 0.26% and the Taiwan Weighted added 0.08%. On the other hand, the Hang Seng slipped 0.03%; the KLSE Composite shed 0.01% and the Seoul Composite declined 0.21%.


At the time of writing, the key European markets were up between 0.61% and 0.98%. At the same time, the US stock futures were trading higher, indicating a positive start to the US markets later in the day.


Back home, foreign institutional investors were net buyers of shares totalling Rs958.94 crore on Thursday while domestic institutional investors were net sellers of equities aggregating Rs863.60 crore.

The Centre conferred the Maharatna status on GAIL India today. Maharatna status would empower its board to take major decisions. The stock ended flat at 342.25 on the NSE.


Government-owned lender Bank of Baroda (BoB) cut Base Rate and BPLR by 25 basis points effective 9th February, the bank said in a press release. Following the cut, BoB’s base rate will be 10.25% and BPLR will be 14.5%. The bank also cut its deposit rates in the range of 15 to 20 basis points in the shorter maturities. The stock rose 0.13% to Rs868.90 on the NSE.


Titagarh Wagons has reported a standalone sales turnover of Rs161.50 crore and a net profit of Rs8.97 crore for the quarter ended Dec 2012. The figures for the previous corresponding quarter were Rs 129.01 crore and Rs 15.56 crore, respectively. The stock gained 0.28% to close at Rs321.50 on the NSE.


Tide Water India disappoints; net profit down 9%

Tide Water India has posted benign results amidst an industry downturn although its sales went up

We had recommended investing in Tide Water Oil Co in our Moneylife issue on 1 November 2012 . The company has announced its third quarter result for the fiscal ending March 2013. It recorded benign sales at Rs216.40 for the December 2012 quarter, 4% higher than the corresponding period last year. However, its net profit declined 9% to Rs14 crore for the three month ended December 2012, when compared to the same period last year. The difficulties in the automotive market meant trouble for ancillaries, as well.

According to the Moneylife database, net sales declined 4% which is four percentage points below its three-quarter year-on-year (y-o-y) average of 8%, not too bad considering the dire circumstances of the automotive ancillary industry. However, what is worrying is that operating profit has declined and slipped into negative territory, when it went down 4%, at Rs21.60 crore, compared to its three quarter y-o-y average of -2%. The operating profit in the last few quarters has been erratic and somewhat sluggish, reflecting the realities of the automotive market. However, having said this, its return on equity remains healthy at 19% while valuations seems fair with its market capitalisation quoting at over eight times is operating profit.

The shareholding pattern has remained almost the same since we recommended the stock, and is tightly held: little over 26% are owned by promoters, roughly 14% owned by financial institutions mostly notably insurance companies, less than 3% are owned by trusts while 34% and 22% are owned by bodies corporate and retail investors respectively.

The Andrew Yule company which specializes on automotive and industrial lubricants has the global rights for the master brand ‘Veedol’. It also has technical collaboration with JX Nippon Oil and Energy Corporation (Japan). It has been a pioneer, which went to decline and now reviving in a tough market.

We had recommended the company when its price was Rs7,875.85 on 1 November. The stock was Rs8,115 on the National Stock Exchange, and was up 0.58% at end of day. We also had recommended it back in 2011.


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