Weak US sales take toll on Lupin Q1 performance, stock slides 4.5%

North America sales fall by a quarter, indicating intense pricing pressures

Lupin’s June quarter (Q1) performance was significantly below expectations, and again stumped the Street. Lupin’s stock, which had outperformed the Sensex since July, thus fell 4.5 per cent on Wednesday. With no immediate triggers, analysts say it may languish for some time.

The Street was expecting strong growth in domestic sales to lift the company’s Q1 performance, amidst expectations of a marginal decline in US revenues. While the domestic market, which accounts for a third of Lupin’s topline, did grow 31 per cent year-on-year (adjusted for excise duty) and 24 per cent sequentially, North American sales fell 26 per cent y-o-y and 21 per cent sequentially, and came way below expectations. 

Analysts said these numbers suggest majority of the US-based generics drug business continues to face intense pricing pressure. The management attributed the decline to increased competition in diabetic portfolio, a branded product going generic, and decline in contribution from flue treatment drug. 

The US now accounts for 31 per cent of Lupin’s topline, down from 42 per cent a year ago. The Asia Pacific region including Japan sales — contributing a sixth to topline — too didn’t support as it was up just 1.5 per cent y-o-y but down 8.4 per cent sequentially.

Not surprising then, consolidated revenue at Rs 37.7 billion missed Bloomberg consensus estimate of Rs 40.92 billion. With US sales under pressure, operating profit at Rs 5.3 billion declined 31.4 per cent y-o-y (down 21.5 per cent sequentially) and net profit at Rs 2.03 billion plunged by over 43 per cent both y-o-y and sequentially, and missed analysts’ estimates of Rs 3.48 billion. The surge in tax rate from 27.7 per cent to 47.2 per cent too weighed on net profit growth.

Moving forward, while Lupin’s product approval rate seems to have increased and it plans a higher number of drug launches in the US, analysts say it will just be enough to sustain overall sales. 

Although Lupin’s 162 drug applications (pending approval of the US regulator) contain 38 first-to-file (FTF) filings, including 16 exclusive FTF opportunities, the resolution of regulatory issues pertaining to its Goa and Indore plants remains important (Lupin expects resolution by end-FY19). 

There are some large products like thyroid treatment Levothyroxine generics and angina treatment Ranexa generics, which are expected to be launched by end-FY19. Till then, analysts are advising investors to wait for some clarity.