Most brokerage houses have cut their target price for pharmaceutical major Lupin Ltd. by up to 20 percent after the drugmaker missed estimates by a big margin in the January-March quarter earnings. However, most have retained their rating on the stock.
Analysts’ concerns revolve around competitive challenges for Lupin in all its key markets of U.S., Japan and India, and a muted outlook in the current financial year.
Here’s what brokerages had to say:
CLSA
- Downgrades from Buy to Outperform
- Cuts price target from Rs 1,760 to Rs 1,350
- Regulatory and competitive challenges in key markets of U.S. and Japan will be visible in FY18.
- Further, few critical FY19 launches have been pushed out to FY20.
- Japan could also see regulatory headwinds as the government is proposing for annual price cuts vs biennial currently.
- Cautious outlook on U.S. business drives 18 percent EPS (earnings-per-share) cuts.
Morgan Stanley
- Maintains Overweight
- Cuts price target by 14.6 percent from Rs 1,846 to Rs 1,472.
- New approvals, which remain key to U.S. sales ramp up, will pick up in FY18 but accelerate in FY19.
- Reasonable margins and complex injectable and respiratory pipeline development for launch in FY20 and beyond drives overweight rating.
- Lowers FY18 and FY19 EPS estimates by 12.6 percent and 14.6 percent, respectively, to account for slower GAVIS ramp up, lower U.S. base business and foreign exchange.
- The reduction in price target is driven by lower target P/E multiple and lower FY19 EPS.
X
Motilal Oswal
- Maintains Buy
- Cuts price target by 20.3 percent from Rs 1,850 to Rs 1,475.
- Competition in Glumetza and Fortamet is expected to lead to a decline in U.S. sales and contraction in EBITDA margin in FY18.
- Believes the recent stock price decline already factors in this impact.
- Cuts FY18E/19E EPS by ~16 percent on building in the impact of competition in key products in the U.S.
- Cuts target multiple from 22x to 20x due to the weak industry outlook.
Macquaire Research
- Maintains Outperform
- Cuts price target from Rs 1,800 to Rs 1,600.
- Expects rising competition in U.S. and delay in few key launches to restrict FY18 U.S. growth.
- Lowers FY19 EPS estimates by ~11 percent to factor in a ~7 percent YoY decline in FY18 U.S. sales, lower dollar versus rupee assumptions and margin assumption at lower end of guidance at 26 percent.
- Strong free cash flow generation of ~$1 billion over the next three years will help the company deleverage despite the large GAVIS & Shionogi brand acquisition along with high capex intensity in the near-term.
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Shares of Lupin were trading 6.1 percent lower at Rs 1,154.65 at 10:37 a.m. on the National Stock Exchange.
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