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STOCK UPDATE Lupin
Recommendation: Buy
Price target: Rs682
Current market price: Rs594 Price target revised to Rs682 Key points -
Lupin to face competition from launch of generic Antara by Mylan: Lupin is set to face competition from generic players like Mylan Inc (Mylan), which started shipping of Fenofibrate capsules ( 43mg and 130mg), in the USA after getting the U S Food and Drug Administration (USFDA) approval and subsequently lifting of an injunction imposed by the US court on the launch of this product. Fenofibrate is currently marketed by Lupin under the brand name of Antara. Lupin obtained an injunction from the court of Federal Circuit to block Mylan from launching Fenofibrate on the ground of patent infringement. However, the court gave a green signal to Mylan to go ahead with the launch. The market for Fenofibrate is estimated at $60 million in the USA of which Antara commands over 60%. We believe the launch by Mylan is set to impact Lupin's revenue stream from Antara. Besides, other generic players are also likely to enter in this space gradually. We assume 30-40% erosion in revenues from Antara due to the competition in initial couple of months and that may dip further with more players joining the fray. -
Brand extensions, launch of niche products and para-IV filings are saving grace; we remain positive on the stock: Apart from competition in Antara, Lupin is set to focus on Suprax, which contributes nearly 60% of the branded portfolio in the USA. Having launched different dosage forms in the USA, it has recently received the USFDA approval for Suprax drops, which will help make up for the fall in revenues from the mature products. Besides, its focus on niche product launches (over 20 launches annually), including launch of para-IV, would help Lupin substantially mitigate the impact of competition in the US market. Thus, we remain positive on the stock. -
We fine-tune our estimate and revise price target down to Rs682: We have reduced Lupin's revenues estimate from the US business by 6% in FY2014 mainly to factor in the decline in revenues from Antara due to the competition. This resulted in our earnings estimate getting revised down by 2.7% to Rs30.8 for FY2014. Accordingly, our price target stands revised down by 3% to Rs682, which is 20x average earnings for FY2014E and FY2015E. We maintain Buy rating on the stock.
SECTOR UPDATE Insurance APE growth continues to remain weak -
The growth in the annual premium equivalent (APE) of the life insurance industry declined for the seventh consecutive month during January 2013 as it declined by 41.1% year on year (YoY). The slowdown was mainly contributed by the Life Insurance Corporation of India (LIC), which showed a decline of 53.4% YoY in the APE. On the other hand, the private players reported a decline of 5.8% YoY in January, with MetLife India Insurance Company (MetLife; down 60.1% YoY), Tata AIA (down 44.2% YoY) and Aviva Life (down 31.4% YoY) posting the steepest decline in the APE. On the other hand, HDFC Life Insurance (HDFC Life; up 22.1% YoY) and Max Life (up 7.8%) posted an increase in the APE on a year-on-year (Y-o-Y) basis. -
On a year-to-date (YTD) basis (April 2012-January 2013), the private players fared relatively better as their APE declined by mere 2.4% YoY as compared with a 21.3% Y-o-Y decline by the LIC and a 15.0% Y-o-Y decline by the industry. The growth (April 2012-January 2013) in the APE of the private players was mainly led by the players like SBI Life (up 16.2% YoY) and HDFC Life (up 7.1% YoY). -
On a month-on-month (M-o-M) basis, the APE for industry declined by 19.3% with the private players and LIC showing a decline of 22.1% and 17.2% respectively. On an M-o-M basis, 16 out of the 22 players posted a decline in their APE. The companies like SBI Life, Max Life and ICICI Prudential reported a decline of 61.6%, 42.1% and 11.9% respectively in their APE. -
The market share of the private players improved by ~490 basis points to 37.9% (LIC, 62.1%) in April 2012-January 2013 compared with 33.0% in the corresponding period of the previous year. During the period under review, the companies like SBI Life, HDFC Life and ICICI Prudential turned out to be major gainers as their market share improved by ~200, 130 and 120 basis points respectively. -
The growth in the life insurance premiums has been disappointing for the past several months. Therefore, compared with a 15-20% growth expectation at the beginning of the fiscal, the market expects the premium growth to be flattish in FY2013. The Union Budget for FY2013-14 has tried to ease some concerns for the sector as it has liberalised the branch opening and allowed the banks to enter insurance broking, which aims at improving the distribution. Besides that, the transition towards the newer regulations (proposed for traditional products) will continue to impact the premium growth. | | | Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article. | | | | | |
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