Lupin: Q2 unimpressive, more triggers required to drive stock

US growth has picked up as anticipated, but India and a few other markets still lag

Lupin’s lower-than-expected performance in the September quarter (Q2) saw its stock close 0.91 per cent lower on a day when the Sensex ended 1.78 per cent higher. While the pharma major saw sequential rebound in sales in most of its target markets, the year-on-year performance was a mixed bag.

The US market, as anticipated, saw improvement led by launch of respiratory Albuterol generics and contribution of other products. Contributing 37 per cent to top line, US sales grew 15 per cent sequentially and 5.6 per cent YoY. However, India, with similar contribution (35 per cent to top line) grew by 3.6 per cent sequentially and saw sales contract by 0.7 per cent YoY. Others (8-9 per cent) like Europe, Middle East, Africa also grew by just 2 per cent YoY. Yet, these gains were shaved off by the 3.7 per cent YoY decline in growth markets like Latin America and Asia Pacific.

Thus, despite good growth in US, consolidated sales fell by a per cent YoY to Rs 3,782 crore. Worse, gross margins also contracted by 140 basis points to 64 per cent, led by change in product mix, while operating profit margin declined 410 basis points YoY. Adjusted for one-off, net profit at Rs 211 crore was down 37.1 per cent YoY, significantly lower than expectation. HSBC’s Q2 net profit estimates, for instance, was Rs 318 crore.

US sales were aided by quick pick-up in volumes of generic Albuterol as a key competitor Perrigo has temporarily exited the segment. Lupin also re-launched diabetes treatment Metformin generics while its market share in thyroid treatment (Levothyroxin) improved. Also, in gastro treatment (Famotidine) where Lupin is the sole generic supplier of oral suspension, its volumes increased by 20 per cent sequentially. Lupin benefited from a full quarter’s contribution of authorised generic Apriso (gastro product) and its share was 11 per cent in Q2 compared to 1 per cent in June quarter, say analysts. While this is positive, all eyes will be on sustenance of momentum. Regulatory clea­r­a­nce for some plants in India and US are still pending.

In India, while growth has rebounded sequentially, sales have been flat YoY and underperformed the India Pharma Market (IPM). Chronics portfolio contributions are strong for Lupin, but benefits are yet to accrue.

To summarise, more triggers are required to drive stock. Analysts feel, although the stock has slipped over 16 per cent from its 52-week high, it currently factors in most positives. HSBC and Credit Suisse are among brokerages that have ‘neutral/hold’ ratings with target price of Rs 925-930 for the stock trading at Rs 936.