This growth co is commanding fair valuations

Fuelled by strong growth across its various business segments, Lupin’s third quarter performance beat the market expectations. The enthused Street pushed the stock up to an intra-day high of 5%. It finally closed 1% above the previous day’s close. The Rs 4,500-crore company posted 38% growth in consolidated earnings for the quarter ended December 2009, against an expected growth of 32%. The consolidated revenues witnessed a YoY increase of 29%, much higher than the estimated growth of 21%.

Robust growth in the formulations business, which contributes around 85% to the company’s turnover, was the major growth driver. The company’s key markets of the US, Europe and India logged strong performance. Lupin continued to log improved performance in US and European markets. These markets, which contribute nearly 40% to the company’s revenues, have registered a robust growth of 44%.

The company in recent times has emerged as one of the leading generic companies in the US. Its branded business in the US grew by 78% during the quarter. Lupin’s Japanese subsidiary, Kyowa contributed 12 % of the overall revenues recording a growth of 13%. Its South African business — Pharma Dynamics reported a growth of 66% during the quarter.

The company’s domestic formulations business, which contributes around 30% to the company’s sales, grew by 21% — significantly outperforming the average growth clocked by the domestic pharma industry. With improved earnings during the quarter, the company has been able to bring down its interest cost by 25% and redeemed its outstanding FCCBs. This has helped to bring down its debt equity ratio from 0.62 as on March end 2009 to 0.46 as on December end 2009.

Lupin has been consistently delivering robust growth over the past several quarters. Its strategy of forging growth through inorganic acquisitions has worked well, enabling it to make inroads in markets like Japan, Germany, Australia and South Africa. With a continued streak of healthy performance, it has outperformed most companies in the sector.

Reflecting this, the company’s stock also has outperformed the Sensex since August last year. Trading at a price-to-earnings multiple of 22 and valued at nearly three times its consolidated revenues (on a trailing four-quarter basis), the growth-oriented company is commanding fair valuations. Investors interested in riding the pharma growth story can consider adding this stock to their portfolio.