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Lupin Ltd's performance for the quarter ended December failed to lift investor confidence. The stock slipped to 52-week lows on Monday.

Though US sales showed some recovery during Q3, improving 9.4% year-on-year, and domestic market sales grew 7.8% year-on-year, lifting the company’s revenues by 4%, operating performance disappointed. Ebitda margins at 13.6% (adjusting for one-offs) were lower than 15.9% in the previous quarter and 19.4% in the year-ago quarter, as per analyst calculations.

The company attributed the weakness in margins to lower sales of specific products pertaining to the flu season. Raw material inflation has also been one of the reasons for the lack of pick-up in margins, as per analysts.

Analysts expect margin pressure to continue in the ensuing quarters too. “Lupin continues to struggle on margin delivery despite US revenues touching $200million in 3Q," said analysts at Yes Securities Ltd. Even accounting for NCE (new chemical entity) R&D spending, Lupin’s margin profile remains much below peers, they added. Also, in 4Q analysts do not expect any material change in margins from the adjusted 13‐14% range seen in 3Q. Historically, Q3 and Q4 have remained good quarters for Lupin as far margins are concerned.

With the disappointment on margins, analysts are cutting their forward earnings estimates too. Analysts at Jefferies India Pvt Ltd have cut their Ebitda estimates for FY23 by 15%. They have also cut their FY24 Ebitda estimates by 4% to factor in for a slightly lower margin going forward driven by higher cost assumptions versus earlier.

It is not only the lower offtake of seasonal products in the US but other factors also that have prompted analysts to cut their forward earnings estimates. Analysts at Motilal Oswal Financial Services Ltd have cut their forward estimates taking into consideration factors such as reduced demand for API (active pharma ingredients) products, elevated raw material cost, incremental operating expenses towards ramping up its diagnostics business, and also ongoing price erosion in the US base business.

Amid disappointment on the margin front and cut in forward earnings estimates, the recovery for Lupin’s performance hinges on the large product launches in the US. Two key products as the launch of generics of Spiriva and Suprep can together contribute up to $100 million in sales, as per analysts estimates. Analysts expect the launch to take place in the second half of FY23. An earlier-than-expected launch of the products can provide a trigger.

On the positive side, the company’s Goa facility had been cleared by the USFDA recently. This can also speed up multiple new launches. Further, the Goa facility clearance can help faster resolution of regulatory issues pertaining to many other facilities, feel analysts and the same will be watched eagerly.

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