Prabhudas Lilladher has given Buy recommendation for Lupin with a target price of Rs. 1287 in its research report issued on Jan 29, 2021

Prabhudas Lilladher’s research report on Lupin

We increase our earnings estimate by 8%/4%/6% for FY21/22/23E on back of lower R&D spend guidance of 9% of sales (versus earlier 10%) and cost optimization towards US branded business. 3QFY21 EBITDAM was higher than our estimate as R&D spend declined 19% YoY and 9% QoQ with favorable business mix. LPC margin has been lower (compared to peers of 18-20%) due to cost escalation in recent past, regulatory issues and lack of key products launch. We believe LPC margin will pull back to 20%+ range in FY22E/23E with strong product pipeline and decreasing regulatory cost. US generics to be key growth driver for LPC with resolution of Somerset, Goa and Pithampur (Unit-2) plus Perrigo’s decision to voluntary recall Albuterol will benefit LPC. On the other hand, domestic formulation will also reach preCOVID levels of 10-12% in FY22E.

Outlook

With increase in earnings estimates due to lower R&D guidance for FY21E-23E, we increase our TP to Rs1,287 (earlier Rs1,214). We maintain BUY (Unchanged) and value LPC on 24x PE of FY23E EPS of Rs54.

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