Rakesh Jhunjhunwala Stock Portfolio: According to the latest corporate holdings presented to the BSE, Rakesh Jhunjhunwala publicly holds 37 shares with a net worth of over 18325 cr. It has a 1.6% stake in Titan (72.5 pounds of shares) worth 865 cr. Titan makes up almost 5% of Big Bull’s portfolio.
Lupine’s Q4FY21 performance was in line with ICICI Securities expectations in all parameters. Consolidated revenue decreased 1.6% to 37.8 million rupees, with an EBITDA margin rising by 500 bp per year and a QoQ of 70 bp to 18.7%. U.S. revenue improved 3.7% QoQ to $ 195 million, thanks to traction in Albuterol, despite the weak flu season.
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Cost control initiatives have helped improve the margin, but staff costs were lower due to certain one-time savings. ICICI Securities expects the combination of revenue to improve in the future with higher cost and sales control initiatives in India and the United States to support margin improvement. However, the short-term outlook remains uncertain due to existing USFDA problems at plants and COVID-19-related outages. Given the recent rise in the share price that has taken into account expectations of margin improvement, ICICI Securities downgrades Lupine to REDUCE from Add.
Kotak Institutional Equities says Lupine is a buying opportunity for investors and believes concerns about rising alterations in albuterol supply and Sandoz entry are minor. Aside from albuterol, Lupine has several medium-term growth drivers, including advances in other inhalation resources, the filing of biosimilars in the U.S., and the potential resolution of warning letters to 2HFY22. Following the recent correction, Lupine is trading on an EBITDA 9X FY2023E. Kotak improves Lupine to BUY with a revised fair value of 1180 rupees.
Progress in complex injectables (peptide hormones, deposits) remains at a nascent stage with a significant contribution probably only beyond FY2024E. With the resumption of FDA inspection of overseas facilities, the resolution of the Goa / Indore units by 2HFY22 are additional triggers for US business. Despite the short-term weakness of the domestic segment, with an expansion in the United States, Kotak believes that Lupine is well positioned to achieve a strong recovery in margins and profitability ratios over the next two years.
Lupine’s gross margin improved 170 bps year-over-year thanks to improved product combination and efforts to reduce acquisition costs, but remained at a flat QoQ. One-time savings in personnel costs due to certain policy changes contributed to the improvement in QoQ to 70 bps of the EBITDA margin up to 18.7%. ICICI Securities expects strict control of operating costs to be maintained. Growth in India and the United States would provide operational leverage to support the improvement in the EBITDA margin to more than 20% in fiscal year 23E.
ICICI Securities believes that the recovery of India’s growth and the gradual increase in sales in the United States would help increase revenue and improve margins that also benefit from cost control. However, USFDA OAI / WL in four plants could deter growth. Overall, we expect revenue and PAT CAGR of 11.3% and 33.5%, above fiscal 21-FY23E. Profitability ratios will remain weak, with RoE and RoCE at 13.0% and 11.1% respectively in fiscal year 23E.
ICICI values increase profit estimates by 3-4% to account for cost control and a lower tax rate. However, ICICI Securities believes that the recent rise in the price of Lupine has taken into account expectations of an improvement in the margin. Therefore, ICICI Securities lowered the shares to REDUCE of Add with a revised target price of 1135 rupees / share based on gains of 24xFY23E and 37 additional rupees / share for Spiriva opportunity (previously: 1080 rupees / share) .
Main risks of Lupine:
Early USFDA troubleshooting and high-value releases in the US