Lupin's Q1 Earnings Weighed Down By U.S. Business, Analysts Cautious
Here's what brokerage had to say after Lupin's Q1 earnings.
Most analysts downgraded or expect a limited upside for Lupin Ltd., citing uncertainties and contraction in the U.S. business.
The drugmaker's net profit rose 18% sequentially to Rs 542.5 crore in the quarter ended June, according to its exchange filing. That compares with the Rs 474.4-crore profit estimate of analysts tracked by Bloomberg.
The bottom line of India's sixth largest pharma company was aided by Rs 373.4 crore ($50 million) received from Boehringer Ingelheim towards successful achievement of key milestones for its clinical stage MEK inhibitor compound, the company said.
Revenue rose 13% sequentially to Rs 4,237.4 crore. Analysts expected Rs 4,178.6 crore.
Ebidta increased 31% to Rs 894.8 crore against the estimated Rs 884.1 crore.
Margin rose to 21.1% from 18.2%, compared with the estimate of 21.2%.
Other Highlights (QoQ)
India sales rose 27.2% to Rs 1,636.2 crore, contributing 42% to total sales (excluding licensing income).
U.S. business contracted 10.8% to Rs 1,333 crore, comprising 35% of total revenue.
Lupin’s Europe, Middle-East and Africa sales saw a 30.3% decline, contributing 7% of the total revenue.
Bulk drugs business contracted 3.8% this quarter.
The company remains committed to grow the U.S. business though existing products and a ramp-up of Albuterol and Brovana (both respiratory distress drugs), Nilesh Gupta, managing director at Lupin, said in the earnings statement.
Here’s what brokerages have to say about Lupin’s Q1 FY22 performance:
Motilal Oswal
Recommends ‘neutral’ with a target price of Rs 1,040 apiece, implying a downside of 1%.
Delivered a significant miss on Q1FY22 core earnings, weighed by lower margins in the U.S. segment, offset to some extent by a milestone payment.
Continues to build a complex product pipeline in the inhalers and injectables space and is also exploring a potential spin-off of the new chemical entity business.
Cut estimates factoring in increased competition in g-Famotidine (heartburn treatment), failure to supply products due to disruption on account of Covid, the deferral of sales of certain products, and reduced operating leverage.
The management expects overall double-digit revenue growth in FY22, driven by a ramp-up in Albuterol, growth momentum in India, and a healthy performance in growth markets.
Lupin lowered its Ebitda margin guidance from 19–20% to 16–17% for FY22.
U.S. gross margin was impacted by increased competition in Famotidine, temporary lower sales in Albuterol, the reclassification of royalties-related expense in material costs, and the failure to supply charges.
Current valuations adequately factor in potential niche launches over the next 12–15 months.
Nomura
Recommends ‘Buy’ with a target price of Rs 1,399 apiece, implying an upside of 42.1% from the opening price on Aug. 12.
Q1 weaker than expectations.
Decline in U.S. sales is due to higher sales based in Q4FY21 (channel push), additional competition in famotidine suspension and price erosion.
Company expects a significant uplift in financial performance in the second half of the fiscal, driven by double-digit revenue growth and Ebitda margin expansion.
ICICI Securities
Recommends ‘Reduce’ with a target price of Rs 962 apiece, implying a downside of 7.2% from the opening price on Aug. 12.
Performance was below expectations due to a dip in U.S. sales and lower gross margin.
U.S. revenue dropped due to price erosion and competition in famotidine and levothyroxine and certain supply issues.
Expect the U.S. business to gradually improve in the coming quarters with growing contribution from Albuterol, and new launches (12-15 each year).
Expect the company to report a healthy growth in India business in coming quarters, driven by chronic therapies.
U.S. sales would remain under pressure and multiple ongoing USFDA issues would weigh on new approvals.
The near-term outlook remains uncertain and we expect Ebitda margin to remain below 20% despite focus on cost control initiatives.
Resolution of USFDA issues would be critical.
Credit Suisse
Downgrades to ‘Underperform’ with a target price of Rs 875 apiece (Revised from Rs 930 earlier), implying a downside of 15.7% from the opening price on Aug. 12.
Margin decline was from hit to high product concentration.
Guided for a muted growth in Q2 FY22 margins could rise to 17-18% in the second half om Albuterol ramp-up.
Margin for Albuterol lower now as Lupin enters into longer term contracts.
Lupin is looking to spin out biosimilars (early stages), NCE and specialty.
Jefferies
Downgrades to ‘Underperform’ with a target price of Rs 940 apiece (revised from Rs 1,090 earlier), implying a downside of 9.4% from the opening price on Aug. 12.
Higher price erosion in U.S. vs estimates.
Believe Famotidine erosion not over yet and could lead to a lower base for future products to build on.
Lupin entering an uncertain period.
JM Financial
Recommends ‘Sell’ with a target price of Rs 990 apiece, implying a downside of 5.8%.
Management expects a rebound in U.S. in the second half on the back of market share gains in Albuterol and contribution from other key products in the inhalation portfolio (gBrovana & gPerforomist).
EMEA revenue witnessed a sharp sequential decline with gFostair (inhaler) expected to be launched in U.K. within the next few weeks
Management revised margin guidance with a full-year margin ex-milestone income of 17% against 19-20% earlier) which was a major negative.
Key assets in the pipeline (gSpiriva, gDulera, gRevlimid & Pegfilgrastim) could start contributing from FY23
Stock is now entering the last leg of mispricing post the recent correction.
Signs of a sustainable U.S. and margin recovery are awaited.
Nirmal Bang
Recommends ‘Accumulate’ with a target price of Rs 1,066 apiece, implying an upside of 2%.
Lower-than-estimated earnings.
Growth was due to higher sales in the Indian market and one-time NCE licensing income.
U.S. sales should recover in the subsequent quarters with ramp-up in
Albuterol inhaler sales and contribution from new inhalation launches like gBrovana.
Albuterol sales came under pressure in due to lower supply volume as the company shifted to long-term supply contracts over spot sales.
The contracted market share was in high teens while average market share was in the low teens.
Potential settlement of Spiriva litigation or a tentative approval by the USFDA would be a key catalyst for the stock going forward.
Key launches expected in FY22 and FY23 include biosimilar Neulasta, gSpiriva, gDulera, gFoster inhaler (U.K. and EU) and gSuprep.
For gSuprep, Lupin has a first-to-file exclusivity and the product can be a meaningful opportunity.
Solosec approval in Trichomoniasis will aid gain in market share.
Dolat Research
Recommends ‘Buy’ with a target price of Rs 1,161 apiece, implying an upside of 10%.
Key triggers
Sevelamer launch in FY22E.
Complex injectables (liposomal-Doxurubicin, Depot-Risperidone) though at a nascent stage with meaningful contribution beyond FY24E.
Margin improvement to be driven by recent monetisation of gBrovana (2HFY22), gDulera (FY23E), gSpiriva launch (FY24E), and an injectable portfolio, along with operating leverage to aid margin expansion.
Key risks:
Slowdown in Albuterol ramp (long-term contracts are higher in volume, low on pricing.
Adverse regulatory outcome (five facilities under warning letter by USFDA).
Executional challenges in complex products.
To mitigate cash burn in its specialty business, company plans to spin off its segments such as oncology, biosimilars via external fund-raising.