Lupine shares hit 52-week low on margin pressure, fall in earnings

Although US sales showed some improvement during Q3, improving 9.4% year-over-year, and domestic market sales up 7.8% year-over-year, driving the company’s revenue up 4%, Operating performance disappointed. According to analysts’ calculations, EBITDA margin of 13.6% (adjusting for one-time) was down from 15.9% in the previous quarter and 19.4% in the year-ago quarter.

The company attributed the weakness in margins to lower sales of specific products related to the flu season. According to analysts, raw material inflation has also been one of the reasons for the reduction in margins.

Analysts expect margins to remain under pressure in the coming quarters as well. “Lupin continues to struggle on margin delivery despite US revenue touching $200 million in 3Q,” said analysts at Yes Securities Ltd. Even accounting for NCE (new chemical unit) R&D expense, Lupine’s margin profile is well below peers, he said. In addition, analysts in 4Q do not expect any material change in margins from the adjusted 13‐14% range seen in 3Q. Historically, Q3 and Q4 have been good quarters for Lupine as far as margins are concerned.

With margins disappointed, analysts are also cutting their forward earnings estimates. Analysts at Jefferies India Pvt Ltd have cut their EBITDA estimates by 15% for FY13. They have cut their FY24 EBITDA estimates by 4%, as a factor of slightly lower margins driven by higher cost assumptions than before.

It’s not only lower offtake of seasonal products in the US, but other factors have also prompted analysts to cut their forward earnings estimates. Analysts at Motilal Oswal Financial Services Ltd have taken into account factors such as lower demand for API (active pharma ingredients) products, increased cost of raw materials, rising operating expenses to scale up their diagnostics business, and ongoing price erosion. Further estimates have been cut. US base business.

The recovery of Lupine’s performance depends on large product launches in the US, amid disappointment on the margins and further cut in earnings estimates. According to analysts’ estimates, the launch of generics of two flagship products, Spiriva and Suprep, could contribute up to $100 million in sales. Analysts expect the launch to happen in the second half of FY23. An earlier launch of the products may provide a trigger.

On the positive side, the company’s Goa facility was recently cleared by the USFDA. It could also trigger many new launches. Besides, the Goa facility clearance could help in faster resolution of regulatory issues related to several other facilities, feel analysts and will be keenly watched.