Stock Market Result Update on Lupin for 2QFY2012

Stock Market Result Update on Lupin for 2QFY2012 with a Buy recommendation and a Target Price of `593 (12 months).

For 2QFY2012, Lupin reported better-than-expected results, both on the top-line and bottom-line fronts. The company’s net sales grew by 24% yoy to `1,742cr, ahead of our expectation. Further, the company reported higher-than-expected growth of 24.4% yoy in its net profit to `267cr. Growth was on account of strong growth in the domestic formulation segment, which also aided the improvement in operating profit. We maintain our Buy recommendation on the stock.

Better-than-expected numbers: Lupin reported net sales of `1,742cr, up 24% yoy, above our estimate. The company’s gross margin expanded to 59.3%, above our expectation, because of higher contribution from the domestic formulation segment. This led to OPM expanding to 21.4%, higher than our estimate of 18.1%. Consequently, Lupin reported double-digit net profit growth of 24.4% yoy to `267cr, which also came in above our estimate.

Outlook and valuation: We expect Lupin’s net sales to grow at a 20.4% CAGR to `8,272cr and earnings to grow at a 24.0% CAGR to `29.7/share over FY2011–13E. Currently, the stock is trading at 20.4x and 15.4x FY2012E and FY2013E earnings, respectively. We maintain our Buy recommendation on the stock with the revised target price of `593.