Why Lupin Fails to Earn a Premium
Uncertainty over the extent of price and market share erosion in two of its key diabetic products and lower-than-expected ramp-up of Gavis acquisition keeping stock rangebound
ET Intelligence Group: At a time when most pharma companies are embroiled in resolution of USFDA issues, facing delay in drug approvals or are still finding their footing in the global generic industry, Lupin, the country’s third-largest pharma company, has been an exception.
With one of the highest drug approval rates, swift resolution of USFDA regulatory queries, diversified presence in key markets, aboveindustry growth in the domestic market, and timely strategic acquisitions, Lupin has registered performance consistent enough to get buy calls from two out of every three analysts, according to Bloomberg data. Ace investor Rakesh Jhunjhunwala holds 1.8% of Lupin.
Yet, the stock is down by a third from its October 2015 high, like the rest of its peers. TheLupinstockistradingatapriceto earnings multiple of 29, or 40% lower than the peak valuation of 49 hit two yearsago.Itfailstocommandanypremium over its peers such as Sun Pharma, which has faced disruption on account of USFDA regulatory issues, and Cipla, whose transition is still to yield the expected results.
Lupin’s management believes that investor concerns over the prospects of the pharmaceutical industry have prevented the deserved re-rating of the Lupin stock.
However, analysts believe there is an uncertainty discount thatiskeepingtheLupinstockwithin a range.