Gaming chips are stacked at a roulette table. (Photographer: Tomohiro Ohsumi/Bloomberg)

At Lupin, When The Chips Are Down Insiders Go Shopping

Lupin Ltd.’s promoters have been on a shopping spree….17 days in a row. The buying started on November 13, three days after two of the company’s manufacturing facilities received a warning letter from the U.S. FDA. Every trading day, between Nov. 13 – Dec. 5, promoters purchased 50,000 shares of Lupin, spending a total Rs 70 crore on 8.5 lakh shares, according to the company’s disclosures on the Bombay Stock Exchange.

The bill and quantity bought pale when compared to the total promoter shareholding of 21.1 crore shares (46.80 percent) worth Rs 17,100 crore as on Dec. 6. Yet, when insiders buy, it’s surely worth noting. Even if it’s not surprising.

Lupin’s stock price is down some 45 percent since the start of the year, making 2017 one of the worst in its history. Measured since its peak at the end of 2015, the company’s market capitalization has dropped by more than 60 percent.

In November 2015, Lupin was worth Rs 91,000 crore. Now it stands at Rs 36,600 crore.

From being the second largest pharmaceutical company by market cap at the start of the year, it now ranks behind Cipla Ltd., Cadila Healthcare Ltd., Aurobindo Pharma Ltd. and Dr Reddys Laboratories Ltd.

To be sure, most export-oriented Indian pharmaceutical companies are reeling under intense competition and pricing pressure in the U.S. market. Lupin has had it tougher as two of its key drugs, Fortamet and Glumetza, witnessed immense competition. Add to that the recent regulatory warning to its Goa and Indore plants, prompting a 20 percent drop in the stock price in November itself.

The stock is currently trading almost 15 percent below the average Bloomberg consensus target of Rs 951.

Seventy percent of sell-side analysts that cover the stock recommended it as a “Buy” as of May 2017. Now it’s just 39 percent, with most brokerages pegging it a “Hold”.

The company may boast of return ratios in excess of 20 percent yet currently trades at a price to earning, P/E, multiple of 17.7x on FY19 earnings.

But often when the chips are down promoters come to the rescue. Using it as an opportunity to buy cheap.

The share price saw a sharp correction on back of concerns in U.S. markets and recently due to the combined warning letter. The promoter may be optimistic that over the next 6 - 9 months, the warning letter may get resolved and not escalate into an import alert. They have several interesting products in the U.S. pipeline which will get monetised once things get resolved.
Param Desai, Pharmaceutical Analyst, Elara Securities

A BloombergQuint email sent to Lupin remained unanswered.