Rakesh Jhunjhunwala stocks Portfolio: As per the latest corporate shareholdings filed on BSE, Rakesh Jhunjhunwala publicly holds 37 stocks with a net worth of over Rs 18325 cr. He holds 1.6% stake in Titan (72.5 lkr shares) worth Rs 865 cr. Titan constitutes nearly nearly 5% of the Big Bull’s Portfolio.

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Lupin’s Q4FY21 performance was in-line with ICICI Securities expectations across all parameters. Consolidated revenues declined 1.6% to Rs 37.8 bn with EBITDA margin expanding 500 bps YoY and 70 bps QoQ to 18.7%. US revenue improved 3.7% QoQ to US $195 mn led by traction in Albuterol, despite weak flu season. 

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Cost control initiatives have aided margin improvement, but personnel costs were lower due to certain one-time savings. ICICI Securities expect the revenue mix to improve going ahead with higher India and US sales and cost control initiatives to support further margin improvement. However, near term outlook remains uncertain due to existing USFDA issues at plants and COVID-19 related disruptions. Considering the recent rally in the stock price that has factored in expectation of margin improvement, ICICI Securities downgrades Lupin to REDUCE from Add.

Kotak Institutional Equities says that Lupin is a buying opportunity for the investors and believes scale-up concerns on albuterol post supply disruptions and Sandoz entry are minor. Apart from albuterol, Lupin has multiple growth drivers in place over the medium term including progress on other inhalation assets, filing of biosimilars in the US and potential resolution of warning letters in 2HFY22. After the recent correction, Lupin trades at 9X FY2023E EBITDA. Kotak Upgrades Lupin to BUY with revised Fair Value of Rs 1180.

Progress on complex injectables (peptide hormones, depots) remains at a nascent stage with meaningful contribution likely only beyond FY2024E. With FDA restarting inspection of overseas facilities, resolution of Goa/Indore units by 2HFY22 are additional triggers for US business. Despite near term weakness in the domestic segment, with US scaling-up, Kotak believes Lupin is well positioned for a strong recovery in margins and return ratios over the next two years.

Lupin’s gross margin improved 170bps YoY driven by improved product mix and efforts to reduce procurement costs but remained flat QoQ. One-time savings in personnel cost due to certain change in policies helped in 70bps QoQ improvement in EBITDA margin to 18.7%. ICICI Securities expects strict control on operational costs to continue. Growth in India and US would provide operating leverage to support EBITDA margin improvement to more than 20% by FY23E.

ICICI Securities believes recovery in India growth and gradual ramp-up in US sales would help revenue growth and margins improvement that also benefits from cost control. However, USFDA OAI/WL on four plants could deter growth. Overall, we expect revenue and PAT CAGR of 11.3% and 33.5%, over FY21-FY23E. Return ratios will continue to remain weak with RoE and RoCE being 13.0% and 11.1% respectively in FY23E.

ICICI Securities raise earnings estimates by 3-4% to factor in cost control and lower tax rate. However, ICICI Securities believes the recent rally in Lupin price has factored in expectation of margin improvement. Hence, ICICI Securities downgraded the stock to REDUCE from Add with a revised target price of Rs 1135/share based on 24xFY23E earnings and an additional Rs 37/share for Spiriva opportunity (earlier:  Rs 1080/share).

Lupin Key upside risks:

Early resolution of USFDA issues and high value launches in US