Together, India and the US generate more than three-fifths of Lupin’s revenue.
Together, India and the US generate more than three-fifths of Lupin’s revenue.

Lupin’s sober March quarter brings reality check to recovery narrative

  • Lupin's revenues in India increased 9.1% from the year-ago period, slower than the 9.9% expansion in the domestic pharmaceutical market last quarter
  • Lupin did not reveal product-specific revenues in the US, making it tough to point the miss vis-à-vis market estimates

Shares of Lupin Ltd plunged 3.9% on Wednesday after the company’s March quarter results trailed estimates. Stabilization in the US generic drug business and the launch of limited competition drugs had led to the expectation that the company will clock double-digit revenue growth in March quarter. In contrast, sales increased by a rather sober 8.7% from the year-ago period.

Sales in North America rose 26% sequentially in dollar terms, reflecting the benefits of new products, notably Ranexa and Solosec. Even so, sales growth lagged several analysts’ estimates. Growth in India was unexciting as well. Revenues in India increased 9.1% from the year-ago period, slower than the 9.9% expansion in the domestic pharmaceutical market last quarter. Inventory rationalization in the distribution channel at the end of FY19 is said to have weighed on sales in India.

Together, India and the US generate more than three-fifths of Lupin’s revenue. The lower-than expected growth in these markets weighed on gross margin expansion as well, leading to the firm missing earnings estimates. Ebitda (earnings before interest, tax, depreciation and amortization) grew 12.3% from a year ago, not significantly better than the 11% rise seen in the December quarter. “Miss on margin (is) due to lower than expected US sales and higher specialty product related marketing expenses in the US," Krishnanath Munde, senior analyst at Reliance Securities said in a note.

Lupin did not reveal product-specific revenues in the US, making it difficult to pinpoint the revenue miss vis-à-vis market estimates. Heading into FY20, the management is confident of growing the business. It expects FY20 to reflect the cost rationalization measures with majority of the benefits kicking in from next year. Ramp-up of new products are expected to aid sales in North America, and India is projected to see double-digit growth.

But how strong the recovery is going to be is the question. Solosec ramp-up has been slower than expected. Further, regulatory scrutiny on Lupin’s manufacturing plants remains an overhang. Post- market hours on Wednesday, the firm said its Aurangabad plant received three observations from the US Food and Drug Administration (US FDA).

The nature of the observations is not known yet. But four of Lupin’s manufacturing facilities are already under the US FDA scanner. “The company continues to grapple with US FDA regulatory hurdles at four manufacturing sites, leading to delay in product approvals. We feel the recovery path is likely to be bit longer than anticipated earlier," said Purvi Shah, associate vice president (research) at Sharekhan Ltd.

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