Home >Markets >Mark To Market >Lupin’s Q4 margins improve, but growth may already be priced in
Lupin's US revenues were healthy, growing 14.7% sequentially. (Photo: Bloomberg)
Lupin's US revenues were healthy, growing 14.7% sequentially. (Photo: Bloomberg)

Lupin’s Q4 margins improve, but growth may already be priced in

There was a 14.7% growth in US market due to pre-stocking and ramp-up in key products

While Lupin Ltd’s stock has jumped 62.5% since it touched a low in March, the fourth-quarter numbers don’t quite provide any reason for that optimism. Revenues and margins were subdued in Q4, but were largely in sync with expectations.

Lupin’s US growth was marginally better, up about 14.7% quarter-on-quarter. Some of this growth was because of covid-19-related prestocking, similar to that of other pharma companies. A few of its products also saw better sales in Q4.

Graphic: Satish Kumar/Mint
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Graphic: Satish Kumar/Mint

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Share of its US revenue also increased to about 42% of the overall revenue, which shows that the company was building on momentum in the US. The management has said that some of the products launched earlier have been ramping up well.

The company’s US drug pipeline also looks encouraging as it filed eight abbreviated new drug applications. At home, the company has kept pace with the Indian market growth rate, thanks to secular growth tailwinds deepening the penetration of drugs in India. Its domestic revenue was up at a decent 13.3% year-on-year, much in line with the domestic market growth rates.

A tad worrying was the growth in other markets, which dragged overall revenue growth. Another worry has been the increase in costs, particularly for raw material and employees. Overall, the company also shifted its product mix, and that impacted its margins. “Gross margin for the company stood at 63.5%, down 610bp y-o-y. This was largely due to change in the product mix," brokerage firm Motilal Oswal Financial Services Ltd said in a note.

However, the company cut back on research and development expenses in Q4 to about 9.1% of sales. This has offset some of the loss in margins, with the overall Q4 Ebitda margin coming in at about 13.7% in Q4 as against 11.4% in Q3.

Ebitda is earnings before interest, tax, depreciation and amortization. On a year-on-year basis, Ebitda margin was down over 600 basis points, in line with the drop in gross margins.

“The savings in research and development has been a big factor influencing Ebitda margins this quarter. Apart from that, other costs have remained similar. While the US revenue has increased significantly, gross margin decline suggests that incremental revenue would have come at a lower margin," said Kunal Damesha, pharma analyst, Systematix Shares and Stocks.

In the coming quarters, the lockdown is likely to lead to lower revenue growth; besides, there could be an increase in costs on logistics and raw material. R&D expenses are expected to be at around levels similar to last year of about 1,500 crore. But the outlook in the near-term is a bit dim due to the lockdown.

While the India market has been steady, growth in the US market is key. But the long run’s growth pipeline is shaping up well. Even so, the stock’s recent run may be

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