CFO & Executive Director’s Letter – Financial Review

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A Balanced Recipe

Chief Financial Officer & Executive Director’s Letter Financial Review


Ramesh Swaminathan CFO Lupin

Business performance & balance sheet highlights

Our business operations continue to unlock and deliver value enabling us to drive growth across key markets globally. FY 2016 saw Lupin maintain its upward growth trajectory in spite of a very challenging and weak global economic environment. We ended the fiscal on a high note registering stellar performance across all key markets. Lupin remains committed to delivering incremental value which is reflected in shareholders return of over 15 times in the last 10 years, a CAGR of 32%.

  • The Company recorded consolidated Net Revenues of 137,016 million in FY 2016, a CAGR of 19% over the last 5 years
  • Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA) grew to 39,412 million as compared to 38,593 million in FY 2015, a CAGR of 27% over the last 5 years
  • Profit Before Tax (PBT) grew to 34,330 million during FY 2016, a CAGR of 28% over the last 5 years
  • Net Profit was 22,707 million in FY 2016 representing a CAGR of 21% over the last 5 years
  • Our Reserves & Surplus increased to 108,943 million during FY 2016
  • Net Operating Working Capital increased to 54,099 million as on 31st March, 2016 as against 30,980 million in the previous year
  • Net Debt-Equity ratio for the Company stands at 0.58:1

Earnings per Share, Dividends & Taxation

The Company recorded Earnings Per Share (EPS) of 50.45 during FY 2016. Lupin’s Board of Directors proposed a dividend of 375%. The Company’s effective tax rate for FY 2016 was 34%.

Investing in our Future
Mergers & Acquisitions (M&A)
Lupin has been consistent in investing to expand its global business footprint over the last 10 years. In that respect, FY 2016 was a year of heightened M&A activity where the Company stepped on the gas to expand and grow its presence in existing markets, create beach-heads to enter new ones and also add brands to create meaningful growth drivers for the future. FY 2016 saw the Company announce and complete the acquisition of Gavis Pharmaceuticals LLC and Novel Laboratories Inc., in the US for USD 880 million; the largest buyout executed by an Indian Pharmaceutical company in the US. The acquisition enhances Lupin’s scale in the US generics market and also broadens Lupin’s pipeline in dermatology, controlled substance products and other high-value and niche generics. The New Jersey manufacturing facility is Lupin’s first manufacturing site in the US. Gavis has 58 ANDA filings pending approval with the US FDA and a pipeline of over 65 products under development. The acquisition goes a long way in strengthening Lupin’s leadership credentials in the US generics market and adds to our overall growth momentum.

During the year, Lupin also acquired a specialty product portfolio in Germany from Temmler Pharma GmbH & CO. KG. The portfolio includes 13 fast growing specialty products including key Central Nervous System products and other specialty products. Lupin’s acquisition of 100% equity stake in Medquímica Indústria Farmacêutica LTDA, Brazil marked the Company’s foray into the high growth Brazilian market and helped shore up its position in the Latin American pharmaceuticals market, coming close on the heels of our acquisition of Laboratorios Grin, S.A. de. C.V. in Mexico the previous fiscal.

Lupin entered into a Strategic Co-marketing Agreement with Boehringer Ingelheim for co-marketing Linagliptin, a novel Dipeptidyl peptidase-4 (DPP-4) inhibitor in India; the DPP-4 Inhibitors market in India is growing at 31% (IMS MAT March 2016).

Capital Expenditure

We continue to invest in creating new manufacturing facilities as well as ramping up existing manufacturing facilities globally to build capacities to meet future demand. We are also investing in technology, automation and IT infrastructure to help us build seamless business operations globally. The Company invested 11,681 million on capital expenditure during FY 2016.

Research & Development

Lupin has always invested ahead of the curve and nowhere is this more obvious than our investments in R&D. FY 2016 saw revenue expenditure on R&D increase to 16,038 million, 11.7% of Lupin’s Net Sales globally, our highest ever. The year saw the Company operationalize its new Center of Excellence for Inhalation Research in Coral Springs, Florida, in the US. The new research center would focus on the development of a global pipeline of inhalation products targeting treatments for Asthma, Allergic Rhinitis, Chronic Obstructive Pulmonary Diseases and other Lung diseases. We are investing in our future by creating a quality pipeline of complex generics, biosimilars and NCE’s.

Internal Control Systems & Information Technology (IT)

Lupin today, has in place a completely scalable and automated financial control and process framework which can effectively support any increase in growth and complexity across our global business operations. A well-established and empowered system of internal financial audits and automated control procedures ensures financial discipline and compliance. The Company has over the last decade made consistent investments to create a process integrated, IT enabled business organization. We have been working on re-engineering our internal Business Processes and reporting framework to help build efficiencies across the Company's operations. All Lupin businesses exist and work together in a common technological environment that includes the Company's global Enterprise Resource Planning (SAP) and Business Intelligence (BI) platforms. Key achievements this fiscal included the implementation of advanced reporting platforms such as TM1 Cognos, a planning, budgeting and forecasting platform that has been deployed with critical functions like SCM, HR and Manufacturing. This will enable complete automation, standardization and transparency in the planning process sparing time for meaningful analysis. All these initiatives are ensuring better operational and transactional control and helping us achieve better efficiencies within our businesses.

Risks, Concerns & Threats

FY 2016 was by the far the most volatile year that one has witnessed in the recent past given uncertainty born out of political turmoil, global economic slowdown as well as sharp fluctuations in global crude prices and foreign currencies. The way we managed risk was not only business critical but a key contributor in Lupin turning out another strong business year. Our hedging strategy for the short, medium and the long-term through forward exchange contracts helped minimize FOREX volatility risk. Our continued investments in creating a global supply chain leveraging real time business intelligence, reporting and forecasting systems has helped us ensure business continuity and sustained growth to deliver value.

We continue to navigate challenges within the Industry successfully, be it price cuts or increased price controls, customer consolidation or increased competition. Our global supply chain, our efforts at continuously de-risking global procurement, our ability to increase market shares in key markets and our ability to service key customers globally has enabled us to consolidate and build on our leadership credentials and maintain growth momentum.

We have built a world-class financial organization standing tall on the pillars of Integrity, Discipline, Foresight, Prudence and Accountability – We at Lupin have a perfectly balanced recipe for growth and leadership.

Ramesh Swaminathan
Chief Financial Officer & Executive Director
Lupin Limited

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