The proposed acquisition of a portfolio of brands of Anglo-French Drugs & Industries and its associates by Lupine Limited is being viewed as a positive. The turnover of the portfolio being acquired was 95 crore during the financial year 2011. Since the acquisition is being made on cash consideration 325 crores, this implies an enterprise value to sales valuation of 3.3 times, which is attractive and according to analysts is less than 4-5 times the industry average.
The portfolio will strengthen Lupine’s offerings primarily in the Vitamins, Minerals and Supplements (VMS) category. The category is growing well and has witnessed strong growth in the current financial year.
Analysts at Motilal Oswal Financial Services Ltd (MOFSL) said that given Lupine’s marketing expertise as well as strong brand recall of the acquired portfolio, there is ample scope to expand sales of the acquired brands over the next 3-4 years. However, the overall sales impact of these products on Lupine’s earnings is expected to be minimal at 0.6% of Lupine’s consolidated FY2011 sales.
Meanwhile, Lupine is doing well in the domestic market, with sales growing 15.9% year-on-year during the September quarter. Similar figures are expected in the December quarter as well.
However, sales growth in the US deserves a major watch. Lupine is facing pricing pressure at its core business in the US, which posted low single-digit sales growth during Q2. It had sales of $172 million and $184 million in the US during the April-March and July-September quarters, respectively, and is targeting a run rate of $200 million per quarter during the second half.
Analysts at Axis Securities Ltd expect Lupine to reach $190 million in US sales in the December quarter, which includes products such as generics of albuterol inhaler, thyroid treatment levothyroxine, etc.
Another positive aspect is that the company has got some relief on the regulatory front. Its flagship Goa facility was approved by the US Food and Drug Administration in December after nearly four-and-a-half years of regulatory hurdles.
In another development, the company on Wednesday announced a partnership with Shenzhen Fonku Pharmaceutical Co Ltd (Fonku) for China — a first for Lupine in that geography.
Indian pharmaceutical companies are eyeing the Chinese market for growth. Dr Reddy’s Laboratories Ltd. has taken a lead in setting up its front-end operations, and Lupine’s progress will be closely watched.
Lupine shares saw a marginal gain of up to 0.8% on Wednesday, the day the broader indices traded.
According to analysts, valuations are limiting the stock’s gains. While analysts at MOFSL expect a 19% CAGR for Lupine’s earnings during FY 2011-24, they added that include the possible launch projections. At current prices, the stock is trading at 25.6 times FY22 estimated earnings.
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