Motilal Oswal on February 12 downgraded Lupin to 'sell' after the pharmaceutical company reported a slump in the financial results of the third quarter of FY23.
The broker said it is slashing Lupin's earning per share (EPS) estimates for FY23, FY24 and FY25 by 41 percent, 6 percent and 5 percent, respectively, after factoring in a "delay in g-Spiriva approval".
The reasons that Motilal Oswal listed for cutting the company's EPS include "increased operational costs on account of field force addition, a gradual revival in the domestic formulation (DF) segment, and higher financial leverage".
"We value LPC (Lupin) at 22x 12M forward earnings to arrive at a price target of Rs 610," it noted. The company's shares were trading at Rs 737 apiece at the closing hours of the last market session.
In the Q3 results declared on February 10, Lupin said its consolidated profit came in at Rs 153.5 crore, down 72 percent from the same quarter of the previous fiscal year when it had a high base due to a net tax rebate of Rs 382 crore.
Motilal Oswal, in its report, stated that "given the expensive valuation even after factoring in earnings upside from niche products, we downgrade the stock to sell".
The brokerage firm added that efforts made by the pharma major toward operational improvements in the base business "have yet to show meaningful benefit".
While Lupin had reported a drop in net profit, the company's operating performance was strong with EBITDA (earnings before interest, tax, depreciation and amortisation) increasing by 44 percent year-on-year to Rs 532.7 crore for the quarter.
According to Motilal Oswal, the improvement in operating performance was driven by a better off-take of seasonal products and a robust momentum in the ROW/API segments. "However, due to higher interest/tax expenses, earnings declined on the YoY basis," it added.
