News Analysis

Lupin – Profit disappoint, but margins look up

Dhuraivel Gunasekaran | Updated on May 15, 2019 Published on May 15, 2019

Tax provisions hurt the bottomline

 

Pharma major Lupin disappointed on the bottomline number, though its margins have started to look up.

It has reported a consolidated net profit of Rs 289.6 crore in the fourth quarter of 2018-19, as against the net loss of Rs 783.5 crore seen in the same quarter in FY-18.

However, the consolidated net profit before exceptional item declined 20 per cent year-on-year (Y-o-Y) during the quarter, mainly due to the higher taxes. The loss in the fourth quarter of the previous fiscal was mainly attributable to an impairment provision of Rs. 1,464.4 crore that the company made on certain intangible assets acquired as a part of Gavis group acquisition.

The tax expenses for the company during the quarter was Rs 300 crore, as against the tax gain of Rs 163 crore seen in the same quarter in the FY-18.

The consolidated total revenue grew 9 per cent YoY in the quarter to Rs 4,326 crore.

Persisting regulatory overhang in US

Lupin’s sales in North America grew by 16 per cent year-on-year (Y-o-Y) in the March quarter to Rs 1,741 crore due to higher contribution from FTF (first-to-file) generic drug Ranexa, ramp-up in Solosec speciality drug and new launches. Over the last few years, Lupin’s US business have been impacted by the price erosion due to competition in key products and regulatory tightening.

However, the company’s US business is expected to get better in the near term due to higher sales in the Ranexa drug and the meaningful generic launches, including Levothyroxine and ProAir.

Lupin is one of the pharma majors to be hit by the regulatory overdrive in the past few years. The recent USFDA inspection at its Mandideep (Unit I) facility, conducted in December 2018, has now been classified as OAI (Official Action Indicated), which increases the risk of receiving a warning letter. The company has indicated that this will not impact the revenue generated from the facility. The resolution for the other two facilities – Goa and Indore (Unit II) that are under the scanner of the USFDA currently have also been delayed. A timely resolution is key to the revenue growth of the company going ahead.

Earlier this month, State Attorney Generals from several US states filed a lawsuit against 19 companies including Lupin on alleged violation of Federal and State Antitrust laws. The States have claimed that they have been hurt because of paying supra-competitive prices for the products they purchased or reimbursed. Any negative outcome will impact the US business of the company.

Traction in other markets

The formulation business in India that accounts for 24 per cent of Lupin’s global sales increased by 9 per cent Y-o-Y in the fourth quarter to Rs 1,053 crore, helped by higher volume in the existing products. However, year-end inventory clearance has impacted the growth numbers. Given its domestic portfolio, which is skewed towards the high-margin chronic segment, the overall revenue of the company is well supported. Under chronic therapies, the company focuses on respiratory, cardiology, diabetes and anti-infectives that have high growth potential.

Operating profit for the quarter stood at Rs 959 crore. Operating margins came in at 22.2 per cent, up 70 bps from the same quarter last year due to due to better product mix and Ranexa’s contribution in the US.

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