Brokerages Negative On Lupin As Outlook Derailed By U.S. Sales, GST

Brokerages are negative on Lupin Ltd. after the drugmaker reported its biggest-ever quarterly decline in net profit for April-June.

In the run-up to the implementation of the Goods and Services Tax (GST), the company faced the brunt of price erosion in some of their product lines and also channel de-stocking ahead of the full implementation of this brand new tax regime.

Ratings Check

• CITI maintains ‘Buy', with a target price of Rs 1,350
• JP Morgan remained ‘Neutral', with a target price of Rs 1,275

Sales were disappointing in the U.S, said Credit Suisse in their report. Inventory days for Lupin in India were halved to 20 days post the implementation of GST.

The broking firm continues to see the company's sales being hit as products such as Fortamet are losing market share to Glucophage. For Glumetza, Lupin's share has reduced to 50 percent from 70 percent. Research and development (R&D) expenses will increase on account of Tiotropium DPI Inhaler trials.

Lower gross margins for Lupin indicate higher price erosion, said JP Morgan. The brokerage firm expects margin of 24 percent versus management guidance of 26 to 28 percent.

There could be downside risk to Lupin's guidance of 26 to 28 percent for EBITDA margin in the current fiscal year, added CITI.

Shares of the Mumbai-based pharma firm gained 0.9 percent to Rs 1,044 apiece as of 12:45 p.m. on the National Stock Exchange.