Rationale

 The rating reaffirmation of Lupin factors in the strengthening of the company’s financial profile supported by strong internal accrual generation on the back of healthy revenue growth and improvement in its operating margins (OPM); and ICRA’s expectation of sustenance of the same over the near term. Lupin reported a 23.2% YoY growth in its revenue to Rs. 15,050.0 crore in 9M FY2024 from Rs. 12,211.6 crore in 9M FY2023 aided by new product launches and broad-based growth across key markets, while its OPM improved to 18.6% from 9.1% in 9M FY2023 (10.8% in FY2023) over the same period, aided by the growing contribution of complex generics products (including inhalations and injectables) and successful implementation of various cost optimisation initiatives. Higher internal accrual generation has led to reduced reliance on debt and strengthening of the company’s debt protection metrics and liquidity position. The rating also continues to factor in Lupin’s strong business profile, its position as one of the leading1 companies in the Indian pharmaceutical market (IPM), its geographically diversified revenue mix and global leadership in several API2 segments. Lupin’s revenue from the US business grew by 38.2% to Rs. 5,345.6 crore in 9M FY2024 supported by volume-led growth in the base business, increased pace of new product launches on account of clearance of a warning letter issued to its facility at Pithampur, Madhya Pradesh, and increasing contribution from the complex generics portfolio including Tiotropium (gSpiriva), which was launched in August 2023. The contribution from the inhalation portfolio has increased significantly to around 42% of Lupin’s revenues from the US business and 25% of its global revenues. Coupled with moderation in price erosion in the oral solids portfolio, this has also resulted in improvement in Lupins OPM. Further, ramp up in sales of new products like Tiotropium and Prolensa, and a strong pipeline of complex generics including injectables like Glucagon and Fosphenytoin, are expected to continue to support Lupin’s US business. Revenue contribution from the domestic business also grew by 10.0% during 9M FY2024, on account of healthy growth across key therapy areas including respiratory, gastrointestinal and gynaecology. Growth in anti-diabetes therapy has remained moderated across the market, including for Lupin, owing to a few patents expiring in the past; however, Lupin performed better than the market in the therapy area. Moreover, with a couple of more products going off-patent in FY2025, performance of the anti-diabetes portfolio is expected to continue to remain moderated. However, the company is expected to continue to outperform the growth in the IPM going forward as well. ICRA notes the successful inspection of the manufacturing facility at Pithampur, which is expected to support the launch of new products in the US. While resolution of warning letters issued to the facilities at Tarapur (Maharashtra) and Unit -1 in Mandideep (Madhya Pradesh) is still pending, ICRA notes that these facilities do not contribute significantly to Lupin’s US business. The rating also factors in the pending resolution of the ongoing industry-wide investigation by the anti-trust division of the US DoJ3 for price-fixing and price collusion allegations as well as other litigations. Moreover, Lupin’s profitability remains vulnerable to foreign exchange (forex) fluctuations because of its foreign operations and foreign currency borrowings, though it hedges them through forward contracts. Large inorganic investments by the company will also remain an event risk, and the impact of such investments on its business and credit profile would be monitored on a case-by-case basis.