Credit Suisse Downgrades Lupin After Weak Earnings

Brokerages were disappointed with Lupin Ltd.’s weak earnings in the April-June quarter, especially in the U.S. markets where it dropped below the $200 million per quarter revenue mark and margins hit a multi-year low of 14 percent.

Credit Suisse downgraded the stock to ‘Underperform’ from ‘Neutral’ and revised the target price to Rs 715 from Rs 770, while other brokerages are awaiting the management call before revising their views.

The drugmaker reported a lower-than-expected profit in the first quarter due to a drop in sales in the U.S. and Japan. Sales in North America, Lupin’s largest market, fell 26 percent.

The stock rallied 11 percent yesterday from the July lows ahead of the earnings pared half of the gains post a weak first quarter.

Of the 43 analysts covering the drugmaker, 14 have a ‘Buy’ recommendation and an equal number recommend a ‘Sell’ on the stock. The rest recommend a ‘Hold’. Lupin is currently trading close to the Bloomberg consensus target of Rs 835.

The company’s weak financial performance over the past few quarters has led to brokerages downgrades. The number of analysts with a Buy recommendation on the stock has dropped to 32 percent this month from 54 percent in August last year, according to Bloomberg.

Here’s what brokerages had to say on Lupin post Q1 earnings:

Credit Suisse

The U.S. price erosion should accelerate with increasing approvals, while recovery is based on few large opportunities, the global brokerages said in a report. Credit Suisse cut the earnings per share estimates for Lupin by 23 percent for the current financial year and by 12 percent for the next.

Citi

The first quarter miss validates the concerns on the vulnerability of the company’s baseline business in the U.S., with meaningful concentration in a few products which are mainly the Metformins and Methergine, Citi Research said in a note.

Investec

The brokerage is negative on Lupin with a target price of Rs 665, according to a post earnings note. The U.S. weakness despite strong India business and favourable currency will lead to higher than expected earnings downgrade.

Macquarie, JP Morgan

Analysts from Macquarie and JP Morgan also point to the weak U.S. sales as a key reason for the disappointment in the results. JP Morgan which currently has a target of Rs 760 on Lupin believes that erosion in the U.S. business and margin reset is concerning particularly given the limited visibility on the drivers for large earnings improvement from the current levels.

Shares of the drugmaker rose as much as 2.2 percent to Rs 844 after declining 2.5 percent in early intraday trade.