US portfolio, margin expansion to drive gains for pharma major Lupin

Complex generics and better mix fuel recovery cycle

The stock of pharmaceutical major Lupin hit its highest level in over seven months on Friday. The stock, which has gained about 6 per cent over the past month, was lifted by a strong showing in the 2025-26 (FY26) second quarter (July–September/Q2). While sales growth was led by the US geography, margins also saw a healthy jump. The company is reportedly in talks to acquire UK-based nutraceuticals major Vitabiotics at a valuation of £1 billion, and the outcome could impact the stock price in the near term. At the current price, the stock is trading at 22x its 2026-27 (FY27) earnings estimates.

 

The recent trigger for the company was the Q2FY26 performance. Riding on the growth in the US and Rest of the World markets, overall revenue grew 24 per cent year-on-year (Y-o-Y). The US revenues at $317 million were up 15 per cent quarter-on-quarter and were better than brokerage estimates. This was largely on account of the generic version of Tolvaptan, a drug used in treating low sodium levels in the blood. The drug was launched under a 180-day exclusivity.

 

Elara Securities estimates over $100 million of high-margin Tolvaptan sales in Q2. The exclusivity extends into the third quarter, and there is a possibility of a prolonged period of limited competition, point out analysts at the brokerage led by Bino Pathiparampil. Elara Securities raised its FY26 through 2027-28 core earnings per share by 8–12 per cent and increased its target price to ₹2,239. They have an ‘accumulate’ rating on the stock. 

In addition to this, the base business in the US also did well, led by the sales of generic versions of Spiriva, used in the treatment of chronic obstructive pulmonary disease, and Myrbetriq for overactive bladder. While the two continue to boost profits in the US business, there is a lack of clarity on additional competition and its impact on them. Myrbetriq sales remain at risk due to IP litigation, and the next hearing is scheduled for February 2026. Currently, there is no indication of the entry of any competitor in the Spiriva market. 

Among other key performers on the sales front were emerging markets, which rose 45 per cent, while other developed markets saw growth of 19 per cent. The India formulation market, however, disappointed with growth of 3 per cent Y-o-Y, which missed estimates. The other business to disappoint was the abbreviated pharmaceutical ingredient business, which was down 13 per cent Y-o-Y. 

The company also posted a healthy operating performance. Its operating profit grew 63 per cent Y-o-Y, while gross margins were 200 basis points (bps) higher sequentially at 73.3 per cent due to a better product mix in the US market. At the operating level, margins were up 400 bps sequentially at 30.3 per cent. Margins were supported by a higher contribution from Tolvaptan. The company has increased its FY26 operating profit margin guidance to 25–26 per cent from 24–25 per cent, but indicated it would come off in FY27. 

Analysts Param Desai and Kushal Shah of Prabhudas Lilladher point out that the company saw a remarkable turnaround in profitability with a 2x jump in operating profit over 2022–23 through 2023–24, aided by a better product mix, continued niche launches in the US, clearance from the US Food and Drug Administration for facilities, domestic formulations regaining momentum, and cost-optimisation measures. 

The brokerage has maintained a ‘buy’ rating with a target price of ₹2,400 and values the stock at 24x its September 2027 earnings. Key risks are competition in Spiriva and delays in new launches in the US. 

Deven Choksey also has a ‘buy’ rating on the stock as it expects continued earnings momentum driven by a sustained rampup in US complex generics, margin expansion from a superior mix, and steady domestic growth.