Analysts at Enam Securities expect pharmaceutical firm Lupin to record 17% and 21% CAGR in sales and net profit over the next two years – led by improvement in margins and increasing contribution from new geographies.

Lupin is expanding into new geographies by augmenting its product basket through cross selling and acquiring front ends across key markets. The analysts at Enam expect these efforts to result in improved earnings quality and return ratios for Lupin.

A report published by the broking house shows that the company is expanding to new geographies through a mix of inorganic (acquired front ends in Germany and Australia, scouting in Mexico) and organic initiatives (Brazil, CIS, France, UK). In US markets the company is broadening branded portfolio through the launch of another line extension of Suprax this year. Further, Lupin is targeting 25-30 filings annually, which include filings for steroids, sustained release products and FTF opportunities. Lupin views CRAMS as a big opportunity, leveraging its forte in developing APIs.

Going ahead, US is likely to remain the company`s key growth driver, the report says. Lupin is one of the few Indian companies that have developed a strong product basket in the US led by branded and complex product focus and its strong relationships. These have enabled it to have one of the most profitable portfolios in the US (shown in the graph below). In many molecules, Lupin has managed to be among the top three generic players in terms of market share, even after being a late entrant (Meloxicam, Lisinopril).

Lupin has indicated that it would be making 25-30 ANDA filings annually over the next two years to fortify its US pipeline (25-30% of these would include filings for complex sustained release products, steroids, from its plant at Indore and patent challenges). The analysts expect US sales of the company to grow at a CAGR of 18-20% over the next few years, as a result of these initiatives.

Having had a successful track record in the US, Lupin intends to replicate this in Europe as well. Given that Europe is consciously moving away from a branded generic model to a generic one, Lupin is building its portfolio accordingly (acquired Hormosan in Germany – front end). The company has adopted a product specific strategy for the UK and France, where it currently sells one product each – lisinopril in the UK and cefpodoxime proxetil in France. It would be expanding its product basket in these markets, by adding another 1-2 products in the current year.

Japan is an important market in Lupin`s overall portfolio. Japan is among the largest market globally at USD 60 billion and is likely to grow at 12-15% in the next 3 years. However, generic penetration rate has been low at 6% by value. Lupin`s acquisition of Kyowa would therefore enable it to benefit from the transitioning of Japan towards higher usage of generics, the analysts at Enam says.

Lupin acquired a minority stake in Generic Health, an Australian generic pharmaceutical company. Generic Health had recently acquired Bellwether Pharma and has a strategic alliance with Actavis and markets a range of generic pharmaceuticals and OTC products. Enam believes this acquisition will enhance Lupin`s product basket and market penetration; Lupin had filed 16 dossiers of generic products with a total market size of about AUD 850 million and has approvals for 14 of these.

Lupin`s strategy of having a `select product` focus approach has enabled it to do better than its peers – its global leadership in select APIs, strong business in the US (inclusive of branded business) reflect the success of this strategy. Analysts believe that Lupin`s foray in new markets will enable it to move to the next level and scale up its global reach and sales.

The broking house retain sector Outperformer rating on Lupin with a target price of Rs 873 (based on 16xFY10FDEPS).

Shares of the company closed up Rs 5.25, or 0.73%, at Rs 720.25. The total volume of shares traded at the BSE was 9,330. (Friday, Sep. 26, 2008)