Lupin

Strong Rx share in Ramipril and the improvement in operating margins for 1Q08 suggest that Lupin could beat our FY09 estimates. However, we maintain them for now given the volatility in SGA and early days for Ramipril. Lupin is most attractively valued among our coverage universe, trading at a FY09F PE of 15.2x. Maintain Buy.

FY09 begins with a bang
Lupin recorded a strong first quarter, reporting net sales of Rs8.6bn, 9% above our expectations. Revenues grew by an impressive 32% yoy, even when excluding the acquisition impact of Kyowa and Rubamin. We believe strong Ramipril sales will have assisted the outperformance; however, the rest of the advanced markets business was also stronger than expected. EBITDA margin at 17.7% was better than our estimate of 16.8% due to lower growth in SGA expenses. Strong sales growth, coupled with margin improvement, led to PAT doubling to Rs1.1bn. Reported 1Q09 EPS of Rs12.7 represents 27% of our full-year FY09 estimate of Rs47.20.

Strong possibilities of revenue upside
We believe there are strong possibilities that Lupin might beat our FY09 top-line estimate of Rs31.6bn (16.7% yoy growth). The average contribution of the first quarter revenues to the total annual revenues has historically been about 23%. Therefore, the strong reported quarter top-line contribution at 27% of our FY09 estimate suggests that annual revenues could be higher, assuming the second half continues to be stronger than the first. Kyowa has reported revenues of US$21m, which would only go stronger with the 10 new products having been launched in July. We believe Ramipril could record net sales of US$17m-25m in FY09 as it has managed to grow its market share despite new entrants. Three months post the 2007-08 flu season, Suprax has still managed to post an impressive average growth rate of 21% ytd. Thus, we believe actual Suprax sales could beat our forecast of flattish yoy growth.

Attractively valued, in our view
We maintain our current estimates while acknowledging possible upside to our estimates. We estimate revenue growth of 16.7% and core earnings growth of 26.4% for FY09, vs corresponding 34.4% and 44.1% growth in FY08. Lupin remains one of our top sector picks owing to its strong core earnings growth, impressive domestic formulation growth, non-dependence on one-offs built into its valuation model and attractive valuation. Maintain Buy.