Buy Lupin; target of Rs 2500: Emkay Global Financial

Emkay Global Financial' research report on Lupin

Lupin delivered yet another quarter of earnings outperformance vs street as well as our estimates, with the beat in 1QFY26 being driven by a higher gross margin. Gross margin as well as EBITDA margin were at multi-quarter highs, with the higher gross margins likely to sustain in 2Q+3Q on the back of exclusivity in gJynarque. 1Q performance reinforces our long-held view that FY26 margins for Lupin will be closer to 26%. We note that our FY27/28 US estimates already factor in incremental competition in gProAir (FY27) and gSpiriva (FY28) and, given Lupin’s/peers’ past as well as recent experiences with inhaler filings, Lupin’s core US profit pool could stay preserved for longer. In addition to the upbeat management commentary (the delay in gDulera launch being a minor negative), our continued positive stance stems from 1) our belief that gJynarque will remain a meaningful contributor to earnings well into FY27, 2) the company being in the middle of a balance sheet strengthening cycle, and 3) Lupin’s sustained R&D investments in complex generics which will continue to feed into its medium-term US pipeline. Besides, the company’s established domestic diabetes franchise benefiting from therapy-specific tailwinds and the likely elimination of margin drag from domestic adjacencies remain potential upside drivers.

Outlook

We marginally raise our earnings estimates and roll forward to Jun-27E EPS; retain BUY and TP of Rs2,500.