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Last Updated : May 20, 2016 12:23 PM IST | Source: CNBC-TV18

See Lupin's earnings growing only 8-12%: Prabhudas Lilladher

Drugmaker's management highly unlikely to achieve guidance, says Surajit Pal, analyst at Prabhudas Lilladher.

Surajit Pal of Prabhudas Lilladher expects Lupin Pharma to post only a 8-12 percent earnings growth in the next two years. The company posted a 47.5 percent growth in net profit in the March quarter at Rs 807 crore. Its net profit in the corresponding quarter a year ago was Rs 547 crore.

In an interview to CNBC-TV18, Pal said he doesn't think that the company's management will be able to achieve the guidance announced on Thursday.

He has a target price of Rs 1,419 on Lupin with a Reduce rating.

On Thursday, Mayuresh Joshi of Angel Broking said the company's plan of action for its Goa plant, which has been entangled in regulatory hurdles with the US FDA, will be crucial.

"The timelines that Lupin's management are looking at for the Goa plant will be critical," he said, adding even though the pharma company has a huge pipeline in generics," the commentary surrounding its Goa plant will be extremely critical for Lupin."

Below is the verbatim transcript of Surajit Pal’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.

Sonia: It is a big down tick that Lupin is seeing. It is now advancing to almost 7.5 percent. Do you think this cut is warranted because of the concerns that Ekta highlighted and how do you approach the stock?

A: I believe there is not only one reason, definitely management was not able to give a good visibility of how they are going to get a resolution in near-term for their Goa plant which is almost -- they have around 30 pending abbreviated new drug applications (ANDAs) out of their own ANDA’s of 105 currently pending with USFDA. I believe that first of all the key drugs, out of the 30 there are many key drugs are pending from that plant.

Management as a result of it could not digress in terms of beyond Glumetza and Fortamet which might be running till August and they might be coming out with another First-to-File (FTF) in this fiscal later part. However, other than this they could not give good guidance of how these resolutions will help them to get a lot of long pending ANDA’s.

Third point is that they also guided for high R&D cost which definitely will impact everybody’s total estimates. So, 12.5 percent this quarter and it is going to be 12.5 percent for FY17 and FY18 and I believe that if they could not maintain growth in US other than Fortamet and Glumetza so this percentage could grow up.

Latha: What are you penciling in, in terms of revenue growth, EBITDA earnings growth and therefore a legitimate price?

A: Overall growth of topline, anything could be high single digit to 10 percent maximum in next two years.

Latha: Earnings?

A: While management is guiding for USD 3.5 billion we doubt any inorganic source of revenue vis-à-vis a previous guidance of USD 5 billion FY18. Given the current revenue of USD 2 billion, I think the guidance is more of aspirational. If I remove aberration of Glumetza and Fortamet then their core business margin without taking other operating income could be around 20-22 percent.

Latha: What earnings will that give?

A: 10-12 percent earnings growth. So, my target price is Rs 1,419; we maintain that. We are suggesting reduce.

Sonia: I wanted to also ask you about Cipla because as Ekta was telling us, Lupin is now going to file for the Advair dry powder inhaler (DPI) and Cipla was the one that was expected to be the first to enter this space. Would that come as a big disappointment and how do you approach Cipla now?

A: As I said last time also, the problem with Cipla is the management and decision making process, so, that has created the whole lot of delay for last three to four years and that is going to continue because I don’t see any end to that. As a result of it they are late in US, they are pending in UK and European market. My guess is that as of now is that even in next one to one and a half years even Glenmark Pharma will be getting more anti asthma business from Europe than Cipla given the current rate of management decision on entering over there. Lupin's decision to file MDI this year, DPI next year and one year after that, they would be launching both the drugs will definitely be a dampener for Cipla.

Latha: Therefore I assume you have a sell or underperform on Cipla, what is the price you are looking at?

A: My target price is around Rs 480.

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First Published on May 20, 2016 10:41 am
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