Shares of Lupin Ltd fell sharply for a second consecutive session on Monday after the pharmaceutical company last week reported a 72 percent drop in net profit for the December quarter compared with a year ago.

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After closing 4.8 percent down on Friday, the Lupin stock dropped another 6.3 percent in opening trade to hit a low of Rs 691 on Monday, taking the cumulative decline to over 10 percent in two days, as brokerages expected further weakness in the company’s earnings in the coming quarter.

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Brokerage firms said that Lupin’s cost-reduction efforts have proven to be inadequate. Compared to the company’s guidance of a reduction of Rs 500-600 crore in costs given around two quarters ago, Lupin is witnessing Rs 200 crore of cost escalation in the first nine months of the current fiscal year.

Brokerages also believe that the company’s Ebitda (earnings before interest, tax, depreciation and amortisation) in Q4 FY23 is going to be similar to that recorded in Q3 FY23.

Concerns also remain over the Ebitda margin guidance of 20 percent by Q4 FY24/FY25 without the Spiriva generic. The drug, which is an inhaler, is a high-margin product but its launch has been delayed from FY23 to the first half of FY24.

Analysts believe that the Spiriva generic is the most critical component for Lupin’s sustainable growth and margin recovery.

After Lupin announced its Q3 earnings, wealth management firm Bernstein issued a ‘market perform’ rating for the stock with a target price of Rs 572. It said that the company’s numbers have disappointed again as costs continued to escalate.

Financial services group Incred also said that Lupin’s improvement was below the asking rate. It maintained ‘Hold’ rating on the stock with a target price of Rs 759.

Brokerage firm Nirmal Bang, meanwhile, downgraded Lupin to ‘Sell’ from ‘Accumulate’ with a target price of Rs 655

Jefferies issued an ‘underperform’ rating on Lupin, while cutting the target price to Rs 555 from Rs 650. It said that Q3 FY23 Ebitda margin missed the estimates sharply due to high operating expenditure despite an in-line revenue. With limited room to control costs, margin revival hinges on timely approvals for high-value US launches and one such launch (Spiriva) has been delayed to H1 FY24, Jefferies added. This drives an estimated 17-42 percent EPS (earnings per share) cut for FY23-25, it noted.

Morgan Stanley remained ‘equalweight’ on Lupin with target price of Rs 717. Core business has started to show margin improvement from a low base, but remains well below industry average, said the global brokerage firm. Operating leverage and Spiriva are key to sustaining this improvement, it added.

(Edited by : Abhishek Jha)

First Published:Feb 13, 2023 12:08 PM IST