Domestic sales a shot in the arm for Lupin, US markets hold key

Lupin Ltd got the much-needed stimulus from the domestic market for its June quarter profitability. Shares of the company perked up 4% on Wednesday, as investors seemed relieved with the largely in-line performance.

The company’s revenues for the first quarter were up 15.4% year-on-year, but little changed compared to the March quarter. Sales growth in the domestic market stood at 9.6% year-on-year. This market is gaining stature and now accounts for about 30% of global sales. On a sequential basis, revenues have increased by 24%, which is commendable. The same, however, cannot be said for its US sales, which accounts for about 35% of its global revenues. North American sales dipped by 11.4% quarter-on-quarter due to lower sales of key drugs and rising competition.

Thankfully, cost-control measures backed up the domestic performance. Material and other costs were lower than the year-ago period. Needless to say, this bolstered its operating performance. As a result, Ebitda (earnings before interest, tax, depreciation and amortization) margins came in at 19.47%, as against 13.67% in the year-ago period. Analysts said this was along expected lines. However, the measure was lower on a sequential basis due to its poor performance in the US market. As such, Ebitda margins were 33 basis points lower compared to Q4 FY19.

Lupin still faces tough competition overseas. Of late, some of its new product launches, such as Solosec, have been gaining traction in the US. A positive is that it launched five products in the US market during the quarter. Besides, it has about 175 products in the US generics market. Nevertheless, growth in most of its overseas markets has been slower this quarter compared to Q4 FY19, and that does not bode well.

Besides, there are several overhangs on the Lupin stock. Pending US regulatory issues will continue to weigh as delays in resolving these issues are impacting sales and profitability. Another key development to watch out for is the number of new approvals it can get in the US market.

That apart, the Lupin stock appears expensive at a price-earnings multiple of about 25.4 times FY20 earnings estimates. A pickup in the US and overseas markets holds key to a long-term revival.