Lupin share price up 22% in just two months; should you bet on Lupin stock at this point?
Lupin share price: Lupin clocked a profit in the March quarter of the financial year 2022-23 against a loss in the corresponding quarter last year. Revenue also saw a decent double-digit rise in year-on-year terms.
Lupin shares rose over 3 per cent to hit their fresh 52-week high of ₹799.65 in intraday trade on BSE on May 15. The stock closed at ₹787.50, up 1.79 per cent higher, extending its winning streak into the sixth consecutive session.
The stock has witnessed smart gains in the new financial year. In FY24 so far, or just about the last two months, the stock has gained almost 22 per cent (as of May 15 close) against a 6 per cent gain in the benchmark Sensex in the same period.
The stock has been witnessing traction for the last few days because of its healthy March quarter numbers. It clocked a profit in the March quarter of the financial year 2022-23 against a loss in the corresponding quarter last year. Revenue also saw a decent double-digit rise in year-on-year terms.
Lupin Q4 numbers
The drugmaker's Q4FY23 consolidated profit after tax (PAT) stood at ₹235.96 crore against a loss of ₹517.98 crore year-on-year (YoY) and a profit of ₹153.47 crore quarter-on-quarter (QoQ.
Total sales for the quarter rose 12 per cent YoY to ₹4,330.30 crore and 2 per cent QoQ. In the same quarter last year, Lupin's sales revenue stood at ₹3,864.50 core while in Q3FY23, its sales were at ₹4,244.56 crore.
As per a BSE filing, the company's EBITDA jumped 117.9 per cent YoY and 11.7 per cent QoQ to ₹615 crore in Q4FY23. EBITDA margin for the quarter stood at 14.2 per cent, up 690 bps YoY and 120 bps QoQ.
Brokerages not so upbeat on Lupin after Q4
While Lupin's March quarter numbers were healthy, a majority of brokerage firms retained their earlier views on the stock and underscored limited upside potential in the stock because of its rich valuation. They also raised questions about the stock's return ratio.
Motilal Oswal Financial Services maintained a 'sell' call on Lupin stock with a target price of ₹640 even though it raised its earnings estimates for FY24 and FY25 by 4 per cent and 2 per cent, respectively, factoring in a better outlook in API/Europe segments, improving operating leverage, and an adverse impact of competition in the diabetes portfolio in the domestic formulation (DF) segment.
Motilal said that profitability has been improving for the past three quarters. However, even after factoring in potential business prospects from a niche launch like gSpiriva, the return ratio would be just 10 per cent. Moreover, the current valuation more than adequately factors in the upside in earnings over FY23-25, said the brokerage firm.
Brokerage firm Nuvama Wealth Management has retained its 'reduce' call on the stock with a target price of ₹655.
The brokerage firm said it does not see any immediate recovery in Lupin's core business while launch timelines remain unclear. The brokerage firm marginally increased FY24/25E earnings per share (EPS) estimates to factor in the benefit of the PLI scheme.
"Notwithstanding the Q4 beat, we flag that core US and India business remains under pressure. Our FY23–25E 11 per cent revenue CAGR and nearly 300bp Q4FY23-to-FY25 margin accretion factor in launches such as gNascobal, gDulera and gSpiriva, and hence any positive surprise is unlikely. The India business is likely to underperform the broader market and opex control seems limited," said Nuvama.
Brokerage firm Sharekhan by BNP Paribas also maintained a 'reduce' call on the stock but raised the target price to ₹700 from ₹660 as it pointed out that the stock still trades at a higher valuation of ~nearly 33.5 times and 21.3 times its FY24 and FY25 earnings, respectively, as compared to peers trading at about 18.5 times and 15.8 times their FY24E and FY25E estimates, respectively.
Brokerage firm ICICI direct maintained a 'hold' call on the stock with a target price of ₹740 due to the sensitivity of margin recovery on a few US launches, ongoing cost rationalisation that is yet to bring sustainable cost reduction, and weak return ratios.
Profit booking possible in the near term
The stock has gained smartly in the near term which has raised the possibility of profit-booking in the near term. Besides, some technical indicators are also hinting towards a correction.
Jigar S. Patel, Senior Manager of Equity Research at Anand Rathi Share and Stock Brokers pointed out that though Lupin is looking lucrative at current levels, one needs to consider that for the last two months, it has given a 19 per cent return already.
Moreover, Patel underscored that a key indicator RSI on daily charts is looking extremely overbought which hints towards some profit booking in the counter.
"One needs to avoid fresh longs and book profits in the zone of ₹785-790 levels if already holding positions. Fresh longs may begin if it gives a weekly close above ₹800 levels and doors will be open for ₹850," said Patel.
Vikram Kasat, Head Advisory at Prabhudas Lilladher underscored the stock has made a decent pullback and recovered strongly from the lows of ₹650 and currently has retested the previous peak where it can find some resistance.
"A decisive move above ₹790-795 zone is necessary to carry on the momentum still ahead for further targets of ₹900-930 levels," said Kasat.
"The support zone is near ₹755-760 zone and if there is some profit booking from the current levels then this zone (support) would be good for further accumulation. Only a decisive breach below the ₹735-730 zone would weaken the trend and one can think of exiting from the position," said Kasat.
Disclaimer: The views and recommendations given in this article are those of individual analysts and brokerage firms. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.
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