Q2FY22 was a weak quarter for Lupin Limited (Lupin) reflecting several one-off expenses and results missed estimates on the operating front. Sales for the quarter stood at Rs 4091 cr, up 6.7% y-o-y driven by a double-digit growth in India & growth markets. OPM’s at 13.8% contracted by 138bps y-o-y attributable to contraction in the gross margins. Adjusting for one offs PAT stood at Rs 497 cr as compared to Rs 211 cr in Q2FY21, while on a reported basis the company had loss of Rs 2098 crore. Lupin is witnessing near term headwinds in the form of heightened raw material costs and price erosion in the US markets, leading to management revising downwards EBITDA margin guidance for H2FY22. While over the long term, strong product pipeline in the US provides ample visibility on growth.
Near term headwinds in the form of increasing raw material costs pressures and heightened competitive intensity could impact growth and exert margins pressures for Lupin. Further expected strong outlook for the domestic formulations business coupled with sturdy product pipeline expected to playout in 2HFY23 could drive the US sales, and are the key growth drivers. At CMP the stock trades at 26.8x/19.7x if FY22E and Fy23E EPS. Lupin’s long term growth levers are intact despite of near term hiccups, hence we retain Buy recommendation on the stock with a revised PT of 1210.
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