Lupin has been one of the key pharma majors to be rerated, rising over 50 per cent from its March lows on the expectations of a growth uptick across key geographies of India and the US.
The recent gains (up 5 per cent) came on Monday after the company received the USFDA approval for its Nagpur facility. While the facility is one among the eight to have received observations over the past two years, the stock could see further upside if key plants also get the green signal from the American drug regulator.
Among them is the Goa facility, which accounts for a significant share of revenue. However, analysts say the USFDA inspection for the Goa, Indore, and Somerset facilities has been shifted to Q2FY21 (from the June quarter), given the Covid-19 pandemic. While the delay is a negative in the near term, approvals for the Goa and Somerset units will help it double the number of launches in the US market for FY21, from the current estimate of 15. The company is expected to launch asthma drug Albuterol and Lupin’s revenue opportunity could be around $50 million. What should drive sales in the US market, which accounts for about 37 per cent of sales, further is the traction in thyroid medicine levothyroxine over the next year.
The other trigger would be growth in the domestic market, which accounts for about a third of sales. Analysts expect the company, which recorded growth of 13.4 per cent in domestic formulations for 9MFY20, to outperform the sector. With chronic medications expected to outperform the acute category for FY21, Lupin should benefit as the chronic segment accounts for 61 per cent of its domestic sales — the highest across peers. About a fifth of sales is contributed by anti-diabetes (both own and licensed) medications, where visibility over the next couple of years appears robust.
Apart from regulatory issues, the near-term movement in the stock will depend on March quarter results. The company is expected to post strong margins, driven by robust sequential growth in the US market. This would be led by market share gains, new launches, and seasonal demand uptick.
Brokerages, such as Motilal Oswal Financial Services, are positive on the company because of limited price erosion in the base business, robust new-launch pipeline, and better-than-industry growth in branded domestic formulations.