Strong product pipeline, US gains to aid Lupin’s growth

Revenue growth, cost-cutting efforts to help expand firm’s operating profit margins

The Lupin stock has underperformed most of its peers over the past year on the back of muted performance in the first half of the year, delay in product launches, regulatory issues related to its facilities and higher valuations. While a 38 per cent return for the stock over the past year is better than the benchmark BSE Sensex’s return of 16 per cent, it is way short of the peer index’s (BSE Healthcare) return of over 53 per cent.

Analysts believe the stock has multiple triggers, led by specialty products in the US market, India business, biosimilars, and margin expansion.

A key trigger would be its performance in the US market, which accounts for over 38 per cent of sales. Of the total US sales of $800 million, about a quarter comes from the specialty segment and this is expected to rise to over a third in the next three years. Says Ankush Mahajan of Axis Securities, “We believe the specialty segment could add strong incremental growth, led by Levothyroxine (thyroid hormone deficiency), Solosec (antibiotic) and inhaler albuterol. Base generic business could increase the demand for flu products like anti-infectives, Tamiflu and the cephalosporins, azithromycin with the uptick in flu season.”

What could add to top line is the launch of biosimilars Etanercept and Namuscla and extension of products in cardiovascular, over the counter and ophthalmology therapeutics, believes the brokerage. Over the medium term (FY23), the injectables portfolio could add to the company’s incremental growth prospects with potential launches like Pegfilgrastim, which stimulates growth of white blood cells. This should reverse the decline in sales in that market.

The firm’s revenues in the US market dipped 2.1 per cent over the FY15-20 period. Analysts at HDFC Securities expect it to gain over 11 per cent in FY2023, led by its specialty and inhaler portfolio. Also, its 156 abbreviated new drug applications (ANDAS) are the second largest among big Indian generic players in the US market. Some of the gains in the US market are expected to be reflected in the December quarter performance with the ramp up of albuterol and its seasonal portfolio.

The chronic-heavy India portfolio, too, is expected to sustain strong growth rates. At 65 per cent, its share of chronic therapies is the highest across top generic drug makers. The company is among top three players in the diabetic, cardiac and respiratory segments. In December, it reported a 14 per cent growth, led by a 21-25 per cent year-onyear (YOY) uptick in diabetic and cardiac therapy sales.

Strong revenue growth and cost cutting efforts are expected to help expand its operating profit margins. Profitability, which dropped from 28.3 per cent in FY15 to 15.3 per cent in FY20, is expected to improve by 500 basis points in the next three years on the back of higher margin portfolio, lower procurement, manpower and research and development costs.

While the company has multiple triggers, regulatory clearance for observations at multiple sites could peg back gains on the product front. The company received 13 observations for its Usbased Somerset facility, which has 40 pending ANDAS.

The stock is currently trading at 25 times its one-year forward estimates and given the back ended nature of product launches, investors with a longer holding period can consider the stock on dips.