Pharmaceutical companies have benefited from rising sales in the US generics market as well as faster growth in the domestic market. Lupin Ltd’s earnings for the September quarter demonstrate this, with consolidated revenue rising by 29.9% to Rs.2,301 crore year-on-year (y-o-y). Sales of formulations rose by 30% and that of active pharmaceutical ingredients (inputs used to make formulations) by 21%.
Among Lupin’s main markets, the US continues to be a growth driver, with sales rising by 40% y-o-y (excluding intellectual property-related income). Sales in India rose ahead of the market at 18%. In Japan, which now contributes to 15% of sales, sales rose by 85% chiefly due to an acquisition and currency gains. In constant currency terms, organic growth stood at 10%.
Sequentially, however, US sales declined a bit as exclusivity revenues from a product ended in the September quarter. Lupin expects to get a number of product approvals, and once it gets US Food and Drug Administration approvals for some of its plants, it expects contribution from new products to increase. This is expected to happen by the fourth quarter of 2012-13.
Lupin’s operating profit margins improved by 2 percentage points sequentially and fell by 34 basis points y-o-y. But this was mainly because of a decline in its research and development (R&D) costs. The company said that lower litigation costs were the main reason. Lupin includes litigation costs related to the launch of generic drugs in the US market under research and development costs. The company expects R&D costs to normalize in the second half. One basis point is one-hundredth of a percentage point.
Lupin’s profit before tax rose by 27.7% y-o-y. The company had said in the past that it expects a higher effective tax rate in 2012-13. But the increase was quite sharp, with tax/PBT (profit before tax) at 32.6% in the September quarter, compared with 29.8% in the preceding quarter and 21.9% in the year ago period. As a result, its net profit rose by only 9.7%.
The company is sticking to its forecast of an effective tax rate of about 28% for the full year, and said that higher profitability due to impending launches in the second half should compensate. Investors will watch out for continued growth in its key markets, especially the pace of product launches in the US. The company’s shares fell by 1.25% on Tuesday, though its reported net profit came ahead of estimates. Worries about the high tax outgo or the fact that lower research and development costs played a role in profit growth seem to be the reasons for this. Investors will watch to see if their impact dissipates in forthcoming quarters.