Lupin is the fifth largest generic player in the US and leader in 31 products marketed in the US generics market. It is third largest in the domestic formulations space, with a field force of over 5,000 medical representatives.
Profitability. Lupin's margins averaged at 25.6 per cent in the last three years. In the December 2014 quarter, margins gained 240 basis points (y-o-y) on the back of improved product mix, higher contribution from Celebrex and the addition of the higher-margin Mexican acquisition.
Outlook. Lupin has set a revenue target of $5 billion by FY18. That translates to a 32 per cent annual revenue growth - a tad higher than its run rate of 27.3 per cent in the last three years. It has guided organic revenue growth of 15-20 per cent. As to the rest of the required growth, Lupin wants to plug the gap with acquisitions. About 20 per cent of the $5 billion revenue target is expected to be drawn from acquisitions over the next couple of years.
New launches in the US will keep revenue momentum buzzing. Domestic sales are showing good growth and cost rationalisation measures, with change in the product mix, have already started showing results. According to Motilal Oswal Securities, Lupin could report earnings per share growth of 25 per cent CAGR over the next two years.
Valuations. Lupin trades at a P/E of 35. However, historic valuation may not be the correct measure to gauge Lupin's potential and premium. ROCE stands at 48 per cent and earnings per share has compounded at 28 per cent CAGR in the last three years. The company's guidance of acquisition in the near term should act as trigger for earnings growth. Buy.