Despite several of its peers putting up a good show for the first quarter, Lupin’s Q1 numbers have been a disappointment. Revenues tumbled 9% year on year (y-o-y) even belying the lower analyst expectations. Little surprise, the stock reacted sharply tumbling about 5.5% on Friday.
In fact, Lupin saw a sharp decline in sales in its US business; it fell about 21% y-o-y. As this business contributes about 35% of overall sales, any decline here has a sizeable impact on its overall portfolio. Of course, some of the business was down due to lower the seasonality in sales of generic Tamiflu. Besides, the firm also saw an impact due to a one-time recall of metformin during the quarter. Even some of its other drugs saw lower sales.
In addition, the domestic business also disappointed and was down about 1.7% y-o-y. Globally, too, Lupin was not able to capitalize on the opportunities unlike some of its peers. Revenue growth in other global markets also took a hit.
The only segment that turned out decent results was the active pharma ingredient segment, which grew 17%. Still, that was not adequate to shore up gross margins, which was down about 240 basis points y-o-y to 63.5%.
Like some of its peers, Lupin did reduce some of its costs. In fact, selling expenses were sharply lower this quarter. However, the firm was not able to improve its operating margins as other costs were sizeably higher. In fact, Lupin’s Q1 FY21 Ebitda was about 10% below consensus estimates, which was quite weak compared to its peers.
“The Ebitda margin was down about 490 basis points y-o-y to 14.4%. It contracted at a higher rate due to higher employee cost, partially offset by lower other expenses,” said analysts at Motilal Oswal Financial Services.
While Lupin has filed for about four abbreviated new drug applications in the US, the pipeline of drug launches is impressive. However, Lupin has not been able to make much headway in the global market. A lack of new launches in the domestic market is also impacting business, say analysts.
As such, with the overall weak business growth and lower margin profile, the coming quarters could play a key role. A revival in business will depend on new launches in the coming quarter and whether it can sustain some of the cost cuts.
The Lupin stock did get a lift. It rose about 15% this year as sentiments swung in favour of pharma stocks. Even so, it has sharply underperformed the Nifty Pharma index, which is up about 40% in 2020. Given the overhang of growth in the US, this divergence may continue for now.
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