Lupin: Valuations, margins to challenge growth
Concerns over stagnancy in its US business, margin pressures and peaking valuations may limit further gains in Lupin stock price.
By Kiran Kabtta Somvanshi, ET Bureau | Updated:
Lupin has been the top gainer of the BSE Healthcare index since the past six months. The stock has gained 21%, outperforming the 18-member sectoral index that has lost 1.5%. However, concerns over stagnancy in its US business, margin pressures and peaking valuations may limit further gains in its stock price.
Lupin is one of the strongly placed companies in the pharma sector. It has significant presence in the domestic market in therapeutic areas like cardiovasculars, diabetology, asthma, pediatrics and CNS, besides holding global leadership positions in the anti-TB and cephalosporins. It is the fifth largest generics player in the US (by prescription) and among the fastest growing top 10 pharmaceutical players in Japan and South Africa.
The company’s June 2011 quarter performance was driven by the growth in revenues logged in India and Japan. Pricing pressure muted the growth of generics business in the US. Antara - its branded business in the US - has logged stagnant sales. Lupin earns one-third of its revenues from advanced markets like the US and the Europe. Stagnation in the business from this region is likely to pull down its overall growth prospects.
Market analysts are expecting the growth rates from this region to pick up in the coming quarters as the company launches new products and oral contraceptives. Margins, which have been under pressure on account of high raw material and employee costs since the past three quarters, will recover as this business picks up. Growth in Japan, India and emerging markets like South Africa has given the company enough reasons to cheer about.
The company’s subsidiaries in Japan and South Africa have seen double-digit growth since the past several quarters. Its latest partnership with Eily Lily to promote and distribute the company’s insulin products in India is further going to enhance its diabetes portfolio.
Lupin has a market cap of. Rs 21,404 crore - more than four times its consolidated net sales over the past four quarters. It is trading at 24 times its consolidated earnings of trailing four quarters - similar to peers like Cadila Healthcare and Cipla. Given that the stock is trading close to its alltime high of .Rs 520, it may not deliver further gains immediately.
Lupin is one of the strongly placed companies in the pharma sector. It has significant presence in the domestic market in therapeutic areas like cardiovasculars, diabetology, asthma, pediatrics and CNS, besides holding global leadership positions in the anti-TB and cephalosporins. It is the fifth largest generics player in the US (by prescription) and among the fastest growing top 10 pharmaceutical players in Japan and South Africa.
The company’s June 2011 quarter performance was driven by the growth in revenues logged in India and Japan. Pricing pressure muted the growth of generics business in the US. Antara - its branded business in the US - has logged stagnant sales. Lupin earns one-third of its revenues from advanced markets like the US and the Europe. Stagnation in the business from this region is likely to pull down its overall growth prospects.
Market analysts are expecting the growth rates from this region to pick up in the coming quarters as the company launches new products and oral contraceptives. Margins, which have been under pressure on account of high raw material and employee costs since the past three quarters, will recover as this business picks up. Growth in Japan, India and emerging markets like South Africa has given the company enough reasons to cheer about.
The company’s subsidiaries in Japan and South Africa have seen double-digit growth since the past several quarters. Its latest partnership with Eily Lily to promote and distribute the company’s insulin products in India is further going to enhance its diabetes portfolio.
Lupin has a market cap of. Rs 21,404 crore - more than four times its consolidated net sales over the past four quarters. It is trading at 24 times its consolidated earnings of trailing four quarters - similar to peers like Cadila Healthcare and Cipla. Given that the stock is trading close to its alltime high of .Rs 520, it may not deliver further gains immediately.
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