1

SYNOPSIS

Lupin Ltd. (LPI) is a pharmaceutical

company which produces generic &

branded formulations and APIs for the

developed and developing markets of

the world.

Lupin Ltd. is global leadership position

for its APIs and holds a firm grip in the

Cephalosporins, Cardiovascular & Anti-

TB space.

During the quarter ended, the robust

growth of Net Profit is increased by

24.11% Rs. 2668.70 million.

Lupin arm ink strategic with Sanofi for

marketing and distribution agreement.

Lupin Ltd. has launched the Authorized

Generic of Femcon® Fe Chewable

tablets in the U.S.

Lupin is the only Asian company with

5th largest and fastest growing generics

player in the US by prescriptions.

Net Sales and PAT of the company are

expected to grow at a CAGR of 17% and

18% over 2010 to 2013E respectively.

Years Net sales EBITDA Net Profit EPS P/E

FY 11 58320.20 11999.60 8625.50 19.33 24.83

FY 12E 68817.84 14201.11 10013.25 22.44 21.39

FY 13E 77075.98 15898.70 11283.70 25.29 18.98

Stock Data:

Sector: Pharmaceuticals

Face Value Rs. 2.00

52 wk. High/Low (Rs.) 519.80/363.00

Volume (2 wk. Avg.) 63000.00

BSE Code 500257

Market Cap (Rs in mn) 214176.00

Share Holding Pattern

1 Year Comparative Graph

LUPIN LTD. BSE SENSEX

C.M.P: Rs. 480.00 Target Price: Rs. 542.00 Date: Nov. 30th 2011 BUY

Lupin Ltd. Result Update: Q2 FY 12

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Peer Group Comparison

Name of the company CMP(Rs.) Market Cap. (Rs.mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Lupin Ltd 480.00 21476.00 19.33 24.83 6.53 150.00

Cipla Ltd 287.00 23043.84 11.99 23.94 3.49 140.00

Aventis Pharma Ltd 2330.00 5366.13 109.64 21.25 5.36 550.00

Cadila Healthcare Ltd 725.55 14855.53 26.59 27.29 7.11 125.00

Investment Highlights

Q2 FY12 Results Update

Pharma major, Lupin Ltd has registered a rise of 24.11% in its consolidated net

profit for the quarter ended September 30, 2011. Its consolidated net profit was at

Rs.2668.70 million for the quarter ended September 30, 2011 against Rs 2150.20

million in the same quarter a year ago. Its consolidated net sales for the current

quarter were at Rs 17723.90 million against Rs 14339.60 million, growth of

23.60%. The total income for the quarter is stood at Rs.17740.10 million against

Rs. 14353.60 million in the same quarter last year. The EPS of the company is

stood at Rs. 5.98 for the quarter ended September 30, 2011.

Quarterly Results - Consolidated (Rs in mn)

As At Sep-11 Sep-10 %change

Net sales 17723.90 14339.60 23.60%

Net Profit 2668.70 2150.20 24.11%

Basic EPS 5.98 24.12 -75.22%

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Break up of Expenditure

� Sanofi Aventis & Multicare ink strategic agreement in the Philippines

Sanofi-Aventis Philippines Inc., which is part of the Sanofi Group, and Multicare

Pharmaceuticals (Multicare), the Philippines subsidiary of Lupin Limited, have

entered into a marketing and distribution agreement whereby Multicare will

market Sanofi-Aventis’s Central Nervous System (CNS) global brands, Solian®

(Amisulpride) and Stilnox® (Zolpidem Hemitartrate) in the Philippines. The annual

sales revenues of these brands are valued at PHP 138 million (IMS).

� Launched and received approvals during the quarter

Lupin Ltd., its subsidiary, Lupin Pharmaceuticals Inc. (LPI) has been granted final

approval by the U.S. Food and Drug Administration (FDA) for its Abbreviated New

Drug Application (ANDA) as follows:

Launch of pharma products:

� Generic KEPPRA XR® Tablets

� Authorized Generic of Femcon® Fe Chewable tablets in the U.S.

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Receives U.S. Food and Drug Administration (FDA) approval for:

� Oral Contraceptive Watson’s NOR-QD® tablets

� Generic KEPPRA® Oral Solution 100 mg / mL

� Levonorgestrel and Ethinyl Estradiol Tablets 0.1 mg /0.02 mg and Ethinyl

Estradiol Tablets 0.01 mg

� Tramadol Hydrochloride ER tablets

Company Profile

Lupin Limited is an innovation led transnational pharmaceutical company producing

a wide range of quality, affordable generic and branded formulations and APIs for the

developed and developing markets of the world. The formation of Lupin in the year

1968 led to the vision and dream to fight life threatening infectious diseases and

manufacture drugs of highest national priority. Lupin is one of the fastest growing

Generic players globally. The company was named after the “Lupin” flower because of

the inherent qualities of the flower and what it personifies and stands for.

Lupin first gained recognition when it became one of the world’s largest manufacturers

of Tuberculosis drugs. Over the years, the Company has moved up the value chain

and has not only mastered the business of intermediates and APIs, but has also

leveraged its strengths to build a formidable formulations business globally.

Today, the Company has established global leadership position for its APIs and holds

a firm grip in the Cephalosporins, Cardiovascular and Anti-TB space.

Lupin continues to enjoy global market leadership in Rifampicin, Pyrazinamide and

Ethambutol, as well as in Cephalosporins such as Cephalexin, Cefaclor and their

Intermediates. In FY 2010, the Company continued to record significant growth in the

7-ADCA and 7-ACCA family of products.

Lupin Ltd. is a key supplier of anti-TB formulations to the Global Drug Facility (GDF)

& maintained its premier position in the Anti-TB space during the current fiscal.

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The Company has moved up the value chain since inception in terms of its products

and geographies. Currently, it commands a formulation business of over Rs 13,502

mn spread across the globe. Lupin has created a strong foothold in the Advanced

Markets of USA, Europe, Japan, Australia and Emerging markets of India and some

of the other Rest of World countries. It has onshore and offshore presence of its

products in 70 countries.

Today, Lupin is the 5th largest and fastest growing generics player in the US (by

prescriptions), the only Asian company to achieve that distinction. The company is

also the fastest growing top 10 pharmaceutical player in India, Japan & South Africa.

Its manufacturing units are located in Goa, Tarapur, Ankleshwar, Jammu,

Mandideep, Indore, Aurangabad and Kyowa in Japan. Benchmarked to International

standards, these facilities are approved by international regulatory agencies like US

FDA, UK MHRA, Japan’s MHLW, TGA Australia, WHO, and MCC South Africa

Business

In formulations it offers wide range of products for treatment of Cephalosporins, CVS,

CNS, Anti-Asthma, Anti-TB, Diabetology, Dermatology, GI, and many more. It

constitutes 84% of Lupin’s business. It has presence in USA, Europe, Japan,

Australia and emerging markets of India and some of the other rest of world

countries. Formulations make up 81% of our overall revenue composition.

In APIs segment it has a basket of product offerings for treatment of TB,

Cardiovasculars, Cephalosporins and many more.

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Financial Results

12 Months Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) FY10 FY11 FY12E FY13E

Description 12m 12m 12m 12m

Net Sales 48707.90 58320.20 68817.84 77075.98

Other Income 142.00 89.00 93.45 98.12

Total Income 48849.90 58409.20 68911.29 77174.10

Expenditure -38869.00 -46409.60 -54710.18 -61275.40

Operating Profit 9980.90 11999.60 14201.11 15898.70

Interest -384.90 -324.60 -272.66 -278.12

Gross profit 9596.00 11675.00 13928.44 15620.58

Depreciation -1239.10 -1711.80 -1985.69 -2223.97

Profit Before Tax 8356.90 9963.20 11942.75 13396.61

Tax -1360.20 -1169.30 -1791.41 -1969.30

Profit After Tax 6996.70 8793.90 10151.34 11427.31

Minority Interest -111.60 -168.40 -138.09 -143.61

Share of Profit & Loss of Asso -68.80 0.00 0.00 0.00

Net Profit 6816.30 8625.50 10013.25 11283.70

Equity capital 889.40 892.40 892.40 892.40

Reserves 24788.90 31918.40 42069.74 53497.05

Face value 10.00 2.00 2.00 2.00

EPS 76.64 19.33 22.44 25.29

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Quarterly Ended Profit & Loss Account (Consolidated)

Value(Rs.in.mn) 31-Mar-11 30-Jun-11 30-Sep-11 31-Dec-11E

Description 3m 3m 3m 3m

Net sales 15535.70 15677.40 17723.90 19141.81

Other income 32.80 11.80 16.20 18.63

Total Income 15568.50 15689.20 17740.10 19160.44

Expenditure -12428.10 -12733.80 -13683.50 -15236.88

Operating profit 3140.40 2955.40 4056.60 3923.56

Interest -78.00 -57.70 -66.40 -64.41

Gross profit 3062.40 2897.70 3990.20 3859.15

Depreciation -462.90 -471.40 -521.90 -537.56

Profit Before Tax 2599.50 2426.30 3468.30 3321.59

Tax -311.50 -286.10 -750.80 -498.24

Profit After Tax 2288.00 2140.20 2717.50 2823.36

Minority Interest -16.00 -39.40 -48.80 -46.36

Share of Profit & Loss of Asso 0.00 0.00 0.00 0.00

Net Profit 2272.00 2100.80 2668.70 2777.00

Equity capital 892.40 892.60 893.00 893.00

Face value 2.00 2.00 2.00 2.00

EPS 5.09 4.71 5.98 6.22

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Key Ratios

Particulars FY10 FY11 FY12E FY13E

No. of Shares (in mn) 88.94 446.20 446.20 446.20

EBITDA Margin (%) 20.49% 20.58% 20.64% 20.63%

PBT Margin (%) 17.16% 17.08% 17.35% 17.38%

PAT Margin (%) 14.36% 15.08% 14.75% 14.83%

P/E Ratio (x) 6.26 24.83 21.39 18.98

ROE (%) 27.25% 26.80% 23.63% 21.01%

ROCE (%) 30.26% 30.86% 29.34% 26.97%

Debt Equity Ratio 0.44 0.35 0.28 0.24

EV/EBITDA (x) 4.28 17.85 15.08 13.47

Book Value (Rs.) 288.71 73.53 96.28 121.89

P/BV 1.66 6.53 4.99 3.94

Charts:

Net Sales & PAT

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P/E Ratio(x)

Debt Equity Ratio

10

EV/EBITDA(x)

P/BV

11

Outlook and Conclusion

� At the current market price of Rs.480.00, the stock is trading at 21.39 x FY12E

and 18.98 x FY13E respectively.

� Earning per share (EPS) of the company for the earnings for FY12E and FY13E

is seen at Rs.22.44 and Rs.25.29 respectively.

� Net Sales and PAT of the company are expected to grow at a CAGR of 17% and

18% over 2010 to 2013E respectively.

� On the basis of EV/EBITDA, the stock trades at 15.08 x for FY12E and 13.47 x

for FY13E.

� Price to Book Value of the stock is expected to be at 4.99 x and 3.94 x

respectively for FY12E and FY13E.

� We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.542.00 for Medium to Long term investment.

Industry Overview

The pharmaceutical industry in India is valued at US$ 12 billion with an annual

compound annual growth rate (CAGR) of 10-11 per cent. The industry spends around

18 per cent of its revenue on research and development (R&D). In India, the clinical

research industry is estimated to be a US$ 2.2 billion with a healthy CAGR of 23 per

cent. India is ranked as the third largest emerging market and is growing fastest in

conducting number of trials.

Moreover, India is expected to join the league of top 10 global pharmaceuticals

markets in terms of sales by 2020 with the total value reaching US$ 50 billion,

according to a report by PricewaterhouseCoopers (PwC).

Sector Structure/ Market Size

The Indian pharmaceutical market is poised to grow to US$ 55 billion by 2020 from

the 2009 levels of US$ 12.6 billion, as per a McKinsey & Company report titled “ India

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Pharma 2020: Propelling access and acceptance realizing true potential”. The industry

further holds potential to reach US$ 70 billion, at a CAGR of 17 per cent.

The pharma industry constitutes around 8 per cent of the world’s pharmaceutical

production. Over the last couple of years, Indian pharma companies have been

increasingly targeted by multinationals for both collaborative agreements and

acquisition, as per an Espicom report titled, “The Pharmaceutical Market: India

Opportunities and Challenges”. The report further echoes the sentiments and the

trends of the industry in totality.

Exports

India’s exports of drugs, pharmaceutical & fine chemicals stood at US$ 9.26 billion

during April 2010–Feb 2011, up 16.15 per cent as compared to US$ 7.97 billion in the

same period during the previous year. India’s exports has recorded a growth rate of

over 20.07 per cent, during the period of the two financial years in the study and the

exports to rest of the world has grown by 9 per cent, according to DGCIS data from

Pharmexcil Research.

Growth

The drugs and pharmaceuticals sector attracted foreign direct investments (FDI) worth

US$ 4.84 billion between April 2000 and May 2011, according to data published by

Department of Industrial Policy and Promotion (DIPP) upto May 2011.

Indian pharmaceutical market is predicted to grow to US$ 55 billion by 2020 from

US$ 12.6 billion in 2009, as per a McKinsey report.

The Indian pharma industry is estimated to grow manifolds, on back of a high middle-

class population base, improvements in medical infrastructure and the establishment

of intellectual property rights.

The Indian pharmaceutical sector has registered an outstanding growth during the

last few years and has become the hub of pharmaceutical companies owing to low cost

manufacturing, large population, and high demand, as per a research report - Global

Contract Manufacturing Market Analysis.

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Generics

India tops the world in exporting generic medicines worth US$ 11 billion and

currently, the Indian pharmaceutical industry is one of the world's largest and most

developed, according to Mr. Srikant Kumar Jena, Union Minister of State for

Chemicals and Fertilisers.

The Indian generic drug market is expected to grow at a CAGR of around 17 per cent

between 2010-11 and 2012-13.

Generics will continue to dominate the market while patent-protected products are

likely to constitute 10 per cent of the pie till 2015, according to McKinsey report ‘India

Pharma 2015 - Unlocking the potential of Indian Pharmaceuticals market’. Moreover,

as per a press release by research firm RNCOS, the report titled ‘Booming Generics

Drug Market in India' projects the Indian generic drug market to grow at a CAGR of

around 17 per cent between 2010-11 and 2012-13.

Diagnostics Outsourcing/ Clinical Trials

The Indian diagnostic market is projected to grow at a CAGR of more than 22 per cent

between 2010 and 2012, as per a research report “Indian Diagnostic Market Analysis.”

Investments

• Dr Reddy's Laboratories Ltd has entered into a memorandum of understanding

(MoU) with a Tokyo-based Fujifilm Corporation to form a joint venture (JV) in

Japan. The venture would develop, manufacture and promote generic drugs in

Japan

• Cadila Healthcare Ltd has entered into a share purchase agreement with ICICI

Venture to acquire 100 per cent shareholding of Finest Procuring Solutions Ltd.

The deal, signed through Cadila's 100 per cent subsidiary, Zydus Animal Health

Ltd, includes the transfer of all key assets, people, brands and export contracts

of Bremer

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• Daiichi Sankyo Company Ltd and Ranbaxy Laboratories Ltd have announced

expansion of their business in Mexico, to maximise their hybrid business

model. As part of the plan, the two companies will launch Olmesartan

Medoxomil, used to treat high blood pressure, in Mexico before the year-end

• Information technology (IT) major HCL Technologies Ltd has announced the

opening of a co-innovation laboratory in Singapore with American

pharmaceutical firm Eli Lilly and Company, to develop new technologies and

solutions specifically for the drug-maker

• Drug-majors Ranbaxy Laboratories Ltd and Pfizer Inc have formalised an

alliance with fast moving consumer goods (FMCG) company ITC Ltd to tap the

rural markets for their over-the-counter (OTC) products. The distribution reach

of an FMCG company into rural areas in India is much wider than that of a

pharmaceutical company, observed Ranjit Shahani, President of the

Organisation of Pharmaceutical Producers of India (OPPI), a platform of largely

multinational drug-makers, and Head of Novartis (India)

• Jubilant Discovery Services Inc, the US-based subsidiary of Jubilant Life

Sciences Company, has entered into a drug discovery alliance with Janssen

Pharmaceutica NV. The alliance will span an initial period of three years and

will mainly focus on multiple targets in the area of neuroscience

• Manappuram Health Care Ltd, a venture of the Manappuram Group of

companies, has forayed into the healthcare sector and plans to invest US$

222.25 million over the next five years to set up a chain of medical, dental

clinics and diagnostics centres across South India. The Group has set a target

to expand to over a 100 outlets by 2015

• Zydus Cadila has signed an asset purchase agreement with a US-based pharma

company for a cash deal of US$ 60 million. The deal also includes purchase of

two generic drugs - Micro-K and Potassium Chloride ER capsule products

• Elder Pharmaceuticals Ltd will invest about US$ 29.02 million in its research

facility over the next 2-3 years, according to Alok Saxena, the firm’s Director

Indian firms in the pharmaceuticals ingredients space are targeting the Japanese

market. Active Pharmaceutical Ingredient (API) manufacturers are set to join hands

15

with Japanese generics producers to supply APIs and intermediates in the world's

second biggest pharmaceutical market.

"Indian drug intermediates or APIs are made with high regulatory compliance, and are

the cheapest as well. That is why Japanese players opt for joining hands with Indian

makers for generic drugs. Also, the free trade agreement will have a good impact over

the alliances," added Venkat Jasti, former President of the Bulk Drug Manufacturers

Association (BDMA) and Managing Director of Suven Life Sciences.

Government Initiative

Marking a new trend of investments from foreign players in the Indian pharma sector,

the need for overseas investors to get a no-objection from their JV partner before

venturing out on their own or roping in another local firm has been removed by the

Pharmaceuticals Export Promotion Council. It is expected that this measure will

promote the competitiveness of India as an investment destination and be

instrumental in attracting higher levels of FDI and technology inflows into the country.

100 per cent FDI is allowed under the automatic route in the drugs and

pharmaceuticals sector including those involving use of recombinant technology.

The Union Minister of Commerce and Industry and Minister of Trade and Industry,

Singapore, have signed a ‘Special Scheme for Registration of Generic Medicinal

Products from India’, which seeks to fast-track the registration process for Indian

Generic medicines in Singapore.

The Department of Pharmaceuticals has prepared a "Pharma Vision 2020" for making

India one of the leading destinations for end-to-end drug discovery and innovation and

for that purpose provides requisite support by way of world class infrastructure,

internationally competitive scientific manpower for pharma research and development

(R&D), venture fund for research in the public and private domain and such other

measures.

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Road Ahead

On back of aggressive marketing initiatives, the pharma companies witnessed rural

market sales doubling. India's rural drug market grew by 18.8 per cent in the 12

months period ended April 2011 as compared with 10.9 per cent in the previous year.

Interestingly, in order to increase their share in the globally important market - in

India, the international drug-makers have introduced generic or low-priced version of

popular medicines and have also decreased prices of their existing products. Global

firms who traditionally banked on sales of their original high-priced medicines have

now come into direct competition with Indian drug-makers. The Indian-makers

business model is built around selling large volume of cheap generic medicines at

lower margins in the country, to add to twin purpose of affordability and popularity.

"The industry posting healthy growth consecutively for the second year reflects the

inherent strengths of the industry and improving healthcare standards in the

country... demand for drugs and pharmaceuticals is on the rise, and is likely to

continue next year as well. The nutraceutical segment will continue to have better-

than-average growth with people getting more conscious of their general health and

well-being," as per Ganesh Nayak, Executive Director, Zydus Cadila.

____________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

17

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