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  • Stock recommendation: Lupin — Reduce — Target price Rs 800

    US collapses, dragging overall performance

    Publish date: August 10, 2018

    Results update

    Lupin’s US business was well below the mark this quarter. The poor showing in the US means the company failed to meet the earnings estimate despite efficient cost-control measures and lower R&D costs.

    Key highlights

    • The pharmaceutical company’s revenues were pegged at Rs 38.5 billion, which is 6.5% below our estimate.
    • The company’s profit after tax (PAT) figures missed our estimate by 47% due to higher taxes.
    • The US business has been a major drag on the company’s earnings. It plunged sharply by $56 million (QoQ), which is $52 million below our estimate. The reasons for the sharp slump are: stiff competition
      (Methergine), market changes and lack of market opportunities (Tamiflu).
    • The low R&D costs declined to Rs 3.75 billion, helping the company to cut its losses.
    • FY2019 is expected to be a fallow year for the pharma company. That’s because the company is expected to launch just one generic product (Ranexa) in the market.

    Valuation & outlook

    The company stock is reasonably valued but the poor showing in the US market remains a cause for concern. We feel the US revenues will be in a lurch for some time and the strength of the recovery will depend on the company getting approvals from US drug authorities and their ability to ramp-up Solosec sales.

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