Lupin disappoints with Q1 nos; acquisition looks expensive; stock may correct: Mayuresh Joshi

In a chat with ET Now, Mayuresh Joshi, Fund Manager, Angel Broking, talks about what investors should with stocks of drug maker, Lupin, post its weak quarterly earnings.

ET Now: What have to make of Lupin’s performance and the bigger concern which is the mammoth acquisition that they announced in the absence of details? Is the stock look expensive?

Mayuresh Joshi: The numbers are extremely disappointing on all counts — bet it topline, or the Ebitda margins. Disappointment was quite evident; the other income part supported the bottom line growth for the quarter, but higher spends on the R&D front probably compressed EBITDA margins.

The top line probably did not grow because the US generic business, as management indicated, has not been doing well. The ANDA applications are not coming through for Lupin. The year-ago quarter also had a fair bit of Suprax composition.

So with generic competition coming through, you are probably seeing some amount of dent happening specifically in terms of the US generic business.

The numbers might disappoint at least for a couple of quarters. When you talk specifically of the acquisition related to Gavis, the acquisition prima facie in terms of the products looks quite interesting. It gives Lupin entry into the generic market.

It is a dermatology specialist. It has got niche products. It has got 66 ANDA applications which are pending. When we looked at the market capitalisation-to-sales of around 9.2 times, yes prima facie, it looks expensive. Having said that, the management is quite hopeful that it might add substantial revenues from FY18 onwards. FY18 is quite some time away.

Overall, numbers were disappointing; acquisition looks expensive and at the current level Lupin stock also looks quite expensive to us. So clearly, downgrades on the stock are quite evident. We will see further correction on the counter.