Lupin off 8% on weak sales forecast; analysts fret over Goa unit

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26 Aug, 2025 12:21

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Moneycontrol Bureau

Lupin shares plunged nearly 8 percent intraday Friday, despite a strong quarterly earnings report, as brokerages are worried about future prospects of the company following recent FDA observations on Goa and Mandideep plants.Majority of brokerages retained their ratings on the stock but half of them slashed target price, citing caution over earnings due to likely higher R&D expenses and cut in FY18 sales guidance by the company.

Deutsche Bank cut earnings per share estimates by 13.5 percent/9.9 percent for FY17/18 to factor in increased R&D spend (from 12 percent to 12-15 percent of sales).

The brokerage said while it acknowledged that these investments could have revenue upside after two to three years, it sees limited share-price upside from current levels. Hence, it downgraded the stock to hold with a revised target price of Rs 1,666 (from Rs 1,850).

In January-March quarter, revenue expenditure on R&D stood at Rs 511.3 crore (a 65 percent rise over year-ago period), which was 12.5 percent of net sales. The company expects R&D spend to increase from 11.7 percent (FY16) to 12-15 percent in FY17.

Nilesh Gupta, MD of Lupin on Thursday said, "We continued to ramp up investments in research and are focussed on building pipelines in niche high-value areas such as inhalation, biosimilars and complex injectables."

The pharma major's fourth quarter consolidated profit shot up 47.5 percent to Rs 807 crore compared to year-ago period, driven by strong US business despite sharp spike in tax cost. Revenue increased 35.9 percent to Rs 4,181.2 crore, largely led by launch of Glumetza in the US with six-month exclusivity (diabetes drug), price hike in Fortamet (diabetes drug) generic due to limited competition and Gavis (that acquired in July 2015).

Although these limited period opportunities (Glumetza and Fortamet) may continue in FY17, Deutsche believes the resolution of Goa 483s will remain key to monitor.

Resolution is important because the plant has high exposure to current US sales and brokerages feel company's sales from October 2016 onwards may get hit due to Goa facility (which has around 25-30 pending ANDAs and some launches), though the company shifted some key products to Aurangabad and Somerset (Gavis) facilities.

Macquarie (which has maintained outperform rating with target of Rs 1,800) expects the outstanding 483 at the Goa plant will put pressure on valuation multiples near-term despite the strong earnings momentum.

CLSA said until clarity emerges over Goa plant), it expects the stock to trade in a narrow range. The brokerage has maintained underperform rating on the stock with revised target price of Rs 1,740 (from Rs 1,800) largely owing to higher amortisation charge due to the Gavis acquisition.

According to CLSA, higher amortisation charges related to the Gavis acquisition will lead to a 1 percent cut in FY17 EPS and 9 percent cut in FY18 EPS.

Bank of America Merrill Lynch (which has maintained buy with a price target of Rs 1,850 on the stock) expects USD 55-60 million higher amortisation costs annually on account of Gavis.

Management remains confident of achieving sales of USD 300 million from Gavis by FY18, though brokerages see higher amortisation charges. Lupin expects 25-30 launches in the US in FY17-15 each from Gavis and the Indian sites.

Macquarie believes strong free cash flow generation of USD 650 million over the next 2 years will help the company to deleverage despite the large Gavis acquisition (that should support Lupin in FY17).

However, Goldman Sachs was the only brokerage that has raised 2017-19 EBITDA by 2-7 percent to factor in better topline trends on Glumetza and Fortamet partially offset by higher R&D spend and capex assumptions. Consequently it raised 12-month target price to Rs 1,719 (from Rs 1,657), though it remained neutral on current valuation.

Operating profit jumped 73.2 percent year-on-year to Rs 1,367.4 crore and margin expanded by 710 basis points to 32.7 percent in March quarter despite sharp increase in R&D expenses.

At 13:30 hours IST, the scrip of Lupin was quoting at Rs 1,542.45, down Rs 113.35, or 6.85 percent on Bombay Stock Exchange.Posted by Sunil Shankar Matkar