Good home show to help Lupin limit fallout of US woes

ET Intelligence Group: Drug maker Lupin has lost nearly half of its market capitalisation in the past 12 months following weakness in its US business. However, steady growth of the high-margin domestic business may help in arresting further value erosion.

Indian pharmaceutical companies are facing regulatory issues and steep competition in the US market. In comparison, the domestic market exhibits a more stable demand trend. Lupin’s Indian business has been growing in double digits.

In the March quarter, its revenue grew by 14 per cent after adjusting for GST restatement. It was primarily driven by increasing market share of the over-the-counter (OTC) products, which do not need prescriptions and new product launches. Currently OTC segment is small but could grow over the coming years.

The domestic revenue was Rs 4,150 crore in FY18 and accounted for 26 per cent of the total sales. The management expects 15-17 per cent growth for the current fiscal. Shares of other pure domestic focus pharma companies such as Glaxosmithkline Pharmaceuticals, Pfizer, Abbott India trade at five-seven times their sales.


Considering a multiple of six, Lupin’s domestic sales can be valued at Rs 25,000 crore or Rs 560 per share. On Thursday, its stock closed at Rs 763.2 on the BSE. The company does not report the EBIDTA (earnings-based interest, tax and depreciation) and net profit figures separately for the domestic business.

According to some analysts, the EBIDTA margin of the domestic business is 27-28 per cent and profit after tax (PAT) margin is 17-18 per cent, which would result in net profit of Rs 750 crore. Considering a multiple of 34 times compared with 34-61 times in case of other domestic focused pharma companies would also value Lupin’s domestic business at Rs 25,000 crore.

Further, what may offer more boost to Lupin’s valuation is the anticipated revival in the US business in the second half of the current fiscal. Lupin has invited the US Food and Drug Administration (USFDA) for reinspection of its Goa and Pithampur facilities in June and analysts expect clearance by the December quarter.

The company also plans to launch major drugs including ‘Levothyroxine’ and ‘Ranexa’ used for thyroid and nausea related issues respectively towards the end of FY19 in the US market. These factors are expected to support the company’s valuation in the medium term.