Lupin Q2 Results Review: Shares Jump Most In Six Months As Analysts See U.S. Sales Recovery
Here's what brokerages have to say about Lupin's Q2 FY22 results:
Shares of Lupin Ltd. gained the most in nearly six months as analysts cheer its U.S. revenue ramp-up guidance though ongoing FDA issues weigh on new approvals.
The drugmaker’s revenue in the American market grew 7.2% sequentially to Rs 1,429.1 crore in the quarter ended September. The U.S. comprises 36% of Lupin's total revenue.
The company reported a loss in the second quarter on account of one-off items and a high base in the preceding three months. Its overall revenue fell 4%.
According to Nilesh Gupta, managing director at Lupin, the company remains focused on ramping up its revenue in the U.S., while continuing robust growth in India. With a restructuring in the U.S., it has significantly scaled down the specialty burn. The drugmaker, he said in the filing, is committed to margin improvement through sustainable growth and cost optimisation.
Shares of Lupin jumped as much as 7.51%—the biggest intra-day gain since May 5—as of 11:25 a.m. on Friday. Of the 41 analysts tracking the company, 20 have a ‘buy’ rating, 10 recommend a ‘hold’ and 11 suggest a ‘sell’, according to Bloomberg data. The 12-month consensus target price implies an upside of 9.3%.
Here's what brokerages have to say about Lupin's Q2 FY22 results:
ICICI Securities
Maintains ‘reduce’ and cuts target price to Rs 804 apiece from Rs 962, implying a downside of 8.8%.
Q2 FY22 performance disappointed again on the margins front, although revenue was in line with estimates.
U.S. sales expected to gradually improve, however, multiple ongoing U.S. FDA issues would weigh on new approvals and keep the growth in check in the near term.
Growth outlook remains uncertain.
Ebitda margin to remain subdued despite focus on cost control initiatives.
Upside risk: continuous healthy India growth and gradual ramp-up in U.S. sales would help revenue growth and margin improvement.
Prabhudas Lilladher
Recommends ‘accumulate’ with a target price of Rs 1,004 apiece, implying an upside of 13.8%.
One-offs marred Q2 profitability.
Recovery in the U.S. sales will be gradual and may hinge on market share gains in gAlbuterol (asthma) with timely niche launches.
Strong inhalation pipeline and biosimilar franchise provides visibility beyond FY22.
Margin will improve in H2 FY22/FY23 with likely savings in promotional expenses related to Solosec (vaginal infection) and rationalization of R&D expenses.
Lupin will be more focused to deal in partner funding for U.S. specialty business.
Most observations related to Goa plant have been already addressed and expects to respond for seventh observation within next two-three months.
Guided $200 million (about Rs 1,500 crore) quarterly revenue run-rate in the U.S. from Q3 FY22 and 16-17% operating margin in H2.
Emkay
Maintains ‘buy’ but cuts target price to Rs 1,150 apiece from Rs 1,300, still implying an upside of 30.4%.
Lupin has lowered its Ebitda margin guidance for H2 FY22 to about 16% from 17-18% earlier.
Revenue beat estimates, while Ebidta missed due to a change in the business mix, higher raw material costs and lower active pharmaceutical ingredient margins.
Lupin has reaffirmed U.S. revenue ramp-up guidance to $200 million per quarter in H2 FY22.
Beyond FY22, management expects high-value product launches such as Spiriva (bronchitis), Suprep and Pegfilgrastim (lack of white blood cells).
Valuation is compelling since the company’s strong India business roughly accounts for 90% of the current market cap and the rest of the business is virtually free.
Catalysts: High-value product approval, plant clearance and cost savings.
Risks: Lower-than-expected ramp-up in limited competition products and delays in resolution of Official Action Indicated/Warning Letter.
Nirmal Bang
Downgraded to 'accumulate' from 'buy' with a target price of Rs 945 apiece, implying an upside of 7%.
Brokerage lowered U.S. sales forecast and gross margin estimates.
Top line growth in the near term continues to be a challenge as business segments other than domestic branded formulations face pressures.
In the U.S., entry of competition in Famotidine (heart burn) suspension has severely dented the base, while the Albuterol inhaler launch, which was supposed to build on the FY21 base, now has to replace the loss of Famotidine.
The large launches in the U.S., which are critical to building growth on the existing revenue base, are still one year away and there remains an element of uncertainty around successful monetisation of these launches.
On Spiriva, timely U.S. FDA approval is the residual hurdle.
Favourable view on the launch of diagnostics business as this would meaningfully help the medium to long term growth potential.
Revises target valuation multiple to 25x considering the deep respiratory pipeline it is working on, impending biosimilar launches and the diagnostic initiative.
Despite cost cutting activities like reduction in R&D expenses and lower employee costs, Ebitda margin dipped.
Lupin filed four abbreviated new drug applications in Q2 FY22 and received one approval from the U.S. FDA.
Nomura
Maintains ‘buy’ with a target price of Rs 1,297 apiece, implying an upside of 47% from Thursday's closing.
Q2 FY22 operating results were largely in line with expectations.
PBT was adjusted for these one-time charges.
In addition, the company incurred additional expense of Rs 32.6 crore for specialty restructuring and Rs 8 crore as forex loss.
These charges are negated by higher-than-normal other operating
income.
The quarter-on-quarter recovery in U.S. sales and India formulation growth were marginally ahead of our expectations.
As per management, the specialty business in the U.S. was scaled down, resulting in a substantial drop in loss incurred.
Overheads are still elevated with scope for further reduction.
Further drop in costs/ restructuring and some pick-up in seasonal product sales may lead to improvement in Ebitda margin from the current low base.
Potential catalysts: Visibility on approval and launch of gSpiriva in FY23F and U.S. FDA clearance of manufacturing sites currently classified as official action indicated.