Lupin's US growth falters again

High base, slow approval for launches hit US business

Lupin’s performance for the quarter ending September again disappointed the Street, with the stock losing 5.25 per cent to close at Rs 1,946 on Tuesday. MOSL analysts were expecting flat sales for the US generic segment. In Q2 though, US sales declined by about 14 per cent in constant currency terms; in rupee terms too sales at Rs 1,155 crore declined 9.4 per cent year-on-year partly aided by the Indian currency’s depreciation. The Indian business also reported lower growth of 9.4 per cent and Japanese business grew by a mere 2.5 per cent in yen terms during the quarter.

With US seeing a decline in sales, Lupin’s revenues and profits came lower than expectations. Consolidated sales grew two per cent year-on-year to Rs 3,178 crore, and came lower than Bloomberg consensus estimates of Rs 3,346 crore.

With existing products in the US under competitive pressure, Ebitda (earnings before interest, tax, depreciation and amortisation) at Rs 714 crore was way below the expected Rs 858 crore. Net profit at Rs 409 crore (down 35 per cent year-on-year) thereby came lower than Rs 570 crore estimates by Bloomberg.

The lack of approvals for larger product launches in the US has been a major reason for declining sales and on a high-base growth has faltered. Though approval rates have picked up in the past couple of quarters, these are only for smaller products while bigger ones are still awaiting approval.  

Analysts believe by the quarter ended March 2016, aided by large approvals, the US market will grow well. The approval for launch of generics of multi-billion dollar heartburn treatment drug Nexium is pending as also for others like kidney treatment drugs Renagel and Ranvela, cholesterol-lowering drug Welchol, oral contraceptive Ortho Tri-Cyclen 28 and antibacterial Azithromycin.

Besides, Lupin has taken price hikes in generics of diabetes drug Fortamet, impact of which will be visible in coming days. The company is expected to launch generics of another diabetes drug Glumetza on 180-day exclusivity by January.

Given the long-term outlook, any weakness in the counter can be utilised to accumulate the stock.