Financial Highlights:

Q4FY24 Result Highlights
Lupin (LPC) reported mixed set of numbers in Q4FY24. Consolidated sales grew by 13% YoY to Rs. 4,895 crores (4% below our estimates). Growth was driven by 22.6% YoY growth in North America region to Rs. 1,900 crore, 8.31% growth in India business to Rs. 1,601 crores, 16% y-o-y growth in the growth market to Rs. 509 crores, 17% y-o-y growth in the EMEA market to Rs. 532 crores, and 8% y-o-y growth in the ROW market to Rs. 94 crores. During the quarter, U.S. sales in CC terms were impacted due to lower seasonal products, which were offset by launch of key products like Tiotropium and Prolensa. India region growth of 8% was driven by new product launches and higher traction in the Rx business. Europe region growth was driven by key products like Fostair, while other regions markets like Australia and Philippines also contributed to growth. Healthy product mix and lower raw-material (RM) cost resulted in a higher gross margin of 67.8%, which was offset by 40% y-o-y growth in research and development (R&D). The company witnessed one-time expense of Rs. 201 crores towards impairments of ANDAs; hence, adjusting against the impairment cost. The drugmaker's operational performance improved significantly as EBITDA margin swelled up 641 basis points to 20.4 percent in Q4. The strong margin expansion can be attributed to the addition of the high-margin asthma drug Sprivia coming into the mix. However, PAT came in lower than expectations dragged by a spike in raw material costs. PAT grew 52% YoY to Rs.360 cr as compared to Rs.236 cr clocked in the same quarter of corresponding fiscal.

India: Outperforming market growth
In FY24, LPC's India Rx business grew by 8.7% year-on-year (9.3% excluding Cidmus), outpacing the Indian Pharmaceutical Market (IPM) growth of 7.6%. Key segments such as Cardiology, Respiratory, and Oncology are growing at a faster rate than the market average.

The anti-diabetes segment, excluding in-licensing, achieved a growth rate of 12%, which is approximately double the segment growth rate. The percentage of in-licensed products in LPC's India Rx sales was around 11% in Q4FY24 and approximately 12% for the full FY24, compared to 15% in FY23. LPC holds the 2^nd rank in the Respiratory segment, leveraging its leadership in therapy. The company has added three new divisions in the past 12 months to strengthen its position. In the Cardiac segment, LPC holds the 3^rd rank. Similarly, LPC is also ranked #3 in the Diabetes Care segment. Approximately 62% of LPC's sales come from chronic therapies. LPC's diagnostic business experienced significant growth, with a 160% YoY increase in FY24. Currently, the company operates 40 labs, serving over 1.25 lakh patients monthly.

North America: Delivering on Complex Generics
LPC's continued momentum is driven by investments in complex generics, 505(b)(2) filings, and biosimilars. Around 80% of the new product sales in FY24 came from non-oral solid products. The inhalation portfolio accounts for approximately 40% of sales in Q4FY24. The company has a robust pipeline with over 40 injectables and 20 inhalation products. It has secured 51 first-to-file (FTF) opportunities, including 18 exclusive FTFs. LPC holds a 4.5% total prescription volume share in the U.S. Albuterol market and a 23.4% market share in the Arformoterol market (both brand and generic combined). Additionally, LPC commands a 28% market share in the generic Arfomoterol market.

Conference Call Highlights

Guidance

• Revenue growth pegged at 10% in FY25.
• EBITDA margin guidance of 20% plus in FY25 and expects to do 23% margin in next two years.
• More than 70% of new launches in the US will be from non-oral solid in FY25.
• US business is expected to sustain quarterly revenue run rate of US$200mn+ for FY25.
• India business is expected to continue to outperform the IPM by 20-30%.

North America

• Lupin maintains its leadership position, ranks #3 in both US generic market and US total market by prescriptions.
• North America accounts for 37% of Lupin’s global sales.
• The Company has filed 1 ANDA in the quarter, received 12 ANDA approvals from the USFDA, and launched 6 products in the quarter in the US. The Company now has 161 generic products in the US.
• Lupin is the leader in 47 of its marketed generics in the US and amongst the top 3 in 105 of its marketed products (IQVIA Qtr March 2024).
• Inhalation portfolio contributes approximately 40% of total US sales in Q4FY24.
• It has a strong pipeline with 40+ injectables and 20+ inhalation products.
• Currently the company has 51 FTFs and 18 exclusives FTFs.
• In Respiratory portfolio, Albuterol market share is 23.4% and Arformoterol market share is 28.0%.
• Mirabegron – The Company has received a Temporary Restraining Order (TRO) and expects to be able to launch the product once it is lifted. The company expects two to three generics in the next 12 months.
• gOracea – has been a good launch for the company.
• Price erosion is currently at single digit which is a reasonable level as drug shortages continue to be high in the US.
• Dulera – The company has met FDA to discuss the CRL and will respond in next 12 months but not likely to launch in next 12 months.
• gSpiriva (Tiotropium) – The company has seen 25-30% share in the market in 10 months and expects to increase to 35-40% in FY25. Pricing is expected to remain same for the full year. Do not expect competition in next few years.
• Expect 5 to 6 filings from Nagpur. Currently two products are manufactured from this facility, one product for US (Ganirelix injection) and one product for some other region.
• Peptide product – Liraglutide is the nearest material opportunity.
• Ellipta – expected to see good progress on filing in FY25.
• Respimat and Ambisome – Respimat is progressing well, and will be filed by the end of FY25, depending upon supplier of the product. Ambisome got out of the transaction as did not see profitability.
• The company Invested Rs4.5-5.0bn in Biosimilar and R&D spent for FY25 will be less than 10%.
• The company expects to launch 20 complex products by 2028 in areas of inhalation and injectables.
• By 2028, the company expects to file three biosimilars in regulated markets and launch 10 novel complex products in India.

India

• Lupin is the 7th largest company in the Indian Pharmaceutical Market (IQVIA MAT Mar 2024).
• Key segments including Cardiology, Respiratory & Oncology are growing faster than the market.
• In the anti-diabetes space, non-in-licensed portfolio has grown at 12%.
• The company launched seven brands across therapies during the quarter and 28 products in FY24.
• Lupin is a chronic focused company with more than 62% contribution from chronic therapies.
• Diagnostic business grew 160% YoY in FY24 with 40 labs under operation serving 1.25+ lacs patients monthly.
• The in-licensed portfolio contributed 11% of India revenue as on Q4FY24 & 12% in FY24.
• Trade generic – The company sees it as a growth opportunity, this business has to be managed closely, which is the main reason to spin off into different entity.

Facility Update

• FDA inspection of company’s Vizag, Dabhasa and Aurangabad plant was completed successfully.
• Aurangabad, Nagpur Unit-1 and Mandideep Unit-2 received EIR.
• Resumption of Mexico site after successful inspection by COFEPRIS.

Other Highlights

• FY24 – more than 80% revenue in the US were from non-oral solids.
• Mexico – seen significant challenges as facility had been closed down for 10 months, caused disruption in product supply. FY25 is expected to be strong.
• Expects higher quantum of R&D spend in FY25, freight has uncertainty, which lead to moderate guidance of 20% plus.

Europe

• Steady growth witnessed in key markets (UK & Germany).
• Growth driven by higher NaMuscla and inhalation products like Luforbec.

South Africa

• 8th largest generics player.
• Revenue grew by 18% QoQ.
• South Africa business has seen good scale; it had been under pressure due to currency volatility.

Outlook & valuation

Lupin delivered mix set of earnings in Q4FY24 but retained 20% EBITDA margin due to a healthy product pipeline. The company focuses on complex generic products like inhalation and injectables to spur growth, with 80% of U.S. sales driven by non-oral solids. The new product pipeline includes complex generics and specialty products, with a US$250mn quarterly run rate from FY2026, driven by Spiriva, Mirabegron, peptide-based products, ophthalmic products, and high-value low competitor products. The India business is expected to sustain double-digit growth with increasing productivity and venturing into newer segments. However, for FY2025E, the company has retained flat guidance of 20% due to expected competition in Suprep. Overall, the company has guided for above 20% EBITDA margin, led by a healthy pipeline of complex generics and specialty products. At CMP of Rs.1615, the stock is trading at 27x FY26E. We recommend HOLD rating on the stock.