stock might fall once promoter stops buying . Now the price is being supported by promoter buying from market.Lupin is a good investment long term , but definitely we can get it at much cheaper price
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Was searching on the web about Lupin. Found this research report, fellow boarders may find it interesting.
Lupin_Equirius.pdf (735.8 KB)
Well as there is lot talk on promotor buying , let me tell you a promoters buying a stake or increasing stake in a company has many reasons.
promoters have a very long term view in many cases.
Promotors may deploy There cashe in the stock as they find it a better option then FD.
For an illiquid scrit ( not in this case) , promoter buys stock to show some liquidity.
For a holding company of a promoters a good divided payout is a reason to deploy cash in the company.
There is another theory. If a crook promoter buys, stock is definitely going to rise, as the promoter will try to make quick bucks, by hook or crook. If an honest promoter buys, there may be no impact on price on the short term as either he has some surplus cash to deploy or he believes in the long term potential of the business. I would put Lupinās promoters in the second category.
Do you know how much is the net profit margin percent for US business. How much it contributes to total profit. Revenue is 50% , but is the US PAT share is also 50% ?
lets not read too much into a particular stockās fall . Sun , glenmark also fell . On the whole Lupin is a good stock to buy provided you are willing to wait . They are into compound generics and that will be a game changer for the big 4 pharma
I think Lupin will replicate DIviās move early this year.
Divis was dumped earlier this year after the FDA import ban and has recovered more than 50% from those levels.
I am not from pharma industry, but i would like to ask the seniors here, are these inspections of FDA (and consequent actions) not a routine thing in the pharma industry ?
Subsequently, a good pharma co. works upon the observations and within a few months a good inspection is reported.
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are these inspections of FDA (and consequent actions) not a routine thing in the pharma industry ?
Subsequently, a good pharma co. works upon the observations and within a few months a good inspection is reportedā¦
Yes, routine things in the pharma industry. However, the recovery is not always a few months. Ipca has not recovered even after a few years, and Sun is seeing more such observations whereas one would have expected it to correct the processes quickly. What spooks investors more than the observations themselves is not knowing if the non-conformities are exceptions, or more of systemic breakdowns. Shilpa, Alembic have for example no such 483 observations, and Cadila and Torrent recovered within a few months. I think someone mentioned the point elsewhere, FDA observations are not merely just another risk, but the Intensity of the single risk is extremely high on the business.
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Only one thingā¦the rise from 500 to 2000 seemed unbroken, and the downfall also might follow the same path. So far the breakdown has been company specific, all it needs to further gather momentum to fall another 20-30% is the breakdown of the overall broader market, even by 10-15%, the much awaited, nay expected correction.
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Lupin promoters have bought in 8.5L shares in the past 17 days
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Dang! The very next day Shilpa gets observations, and 10 of them ! The punishment was 5%, and if in future there is a repeat, then the punishment is likely to get heavier. The point here is that Lupin, Sun, Ipca have had a series of observations over time, so market now thinks its a systemic issue that needs deeper corrective measures. Also, multi-location dimension has its additional set of challenges as well.
Lupin promoters keep on buying from open market.
I think they have increased stake of around 0.2% after the warning letter news.
Regards,
Suhag
Isnāt that they should concentrate on resolving the issue and not repeating such issues in future? Are they buying just because the share price is down and anyways they will resolve the issue?
Which is better:
- Promoter working hard to not to get any such warnings?
- Promoters which are okay to get such warnings, work towards resolving them and then buy shares at lower price?
I know lot of Indian pharma companies are getting FDAs these days, but trying to understand the opinion of others about these situations.
Why canāt both be done together? Buying shares doesnāt mean that they are not working to resolve the issues.
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I am a beginner but Just wondering, if such (meagre) buying is probably to affect public sentiment, perhaps? Could it be a bait in conjunction with bigger fishes who may want to dump slowly at higher prices? Etcā¦
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You donāt have to choose only one option. In general, promoters know what it takes to resolve these FDA issues. I am saying this based on recent resolutions of FDA observations by many Indian pharma companies.
In case of Lupin, promoters started buying from open market immediately after the warning letters were issued to their two plants and they are still buying almost regularly. They may have seen value at that level or they just wanted to arrest the slide in the share prices to a particular extent. In both the cases, it has worked well for the script.
Regards,
Suhag
Promotors are investors too. Why would they let an opportunity go by when they know so much about the potential of an investment. But this does not necessarily mean they are not working on FDA observations. And these observations are for the new plants which is even though not ideal, is a part of initial phase of any new operations.
Disclosure: invested, after the fall.
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Developments in a competitor in generics. : https://www.fiercepharma.com/pharma/teva-s-stunning-list-cuts-targets-14k-jobs-3b-costs-and-plants-around-globe?mkt_tok=eyJpIjoiWXpGaU1USTBaR0V4T1RNNCIsInQiOiI3b0w3WkppSmhcL1RuOTlVVVFlSGtic2tYKzlsYTdqQjBTaTNOXC8rT1ZiU2w2S2R2d3Nqd1wvZHZ1WVNNYkliZE9jSmE0REhXNmhoaG9JYXZ6SzJQVm0xdFVmQ2xaZWFDYzZES3NSVE1WQVpoUHk0OElUVnpvNEtWMkwreTJ4dU91TyJ9&mrkid=672373
This development is coming ahead of what I was expectingā¦as the cost pressures mount, it is likely that there is consolidation among the generics players, and this is where the Indian companies might gain. It seems to be an IT story playing out again, though with different dynamics, the central pivot could be same - cost advantage.
Lupin can be divided into 2 businesses one is the US based business and second is non-USA. Distinction is not only based on geographies but the way pharma Markets are moving in the USA and non USA category. US business of Lupin is moving towards complex generics which is almost a no-entry barrier business and a part of it is moving towards branded speciality business which has high entry barriers. I think every company in India is claiming that they are entering complex generics so it is difficult to assume that complex g is a difficult to enter industry. Another grey area where a lot of investments have been made by Lupin is in bio-similars. My understanding is that if biosimilar and specialty clicks well for Lupin it will do well in the US market. I think they have taken the US market challeges most aggressively and have invested heavily in R&D to be future relevant. Of course hits and misses in R&D will matter. Approx. R&D Investment in last 3 years is 5k crs. Currently US business is approx. 47% of total sales.
Coming to the Non-US business, India is a branded generic play and Lupin has been extremely aggressive in New relevant product launches and in-license partnerships. Lupin India has consistently outperformed IPM growth and gained good market share in semi-chronic and chronic categories. Indian Markets is totally branded generics and that creates good entry barriers for new players. Further tighter regulations by Indian FDA will augur well for regulation ready players like Lupin. I feel India business has great potential to grow in terms of reach as well as pricing (though regulated but still there is pricing power)
Second biggest business in Non-US market is the Japan market. Lupin has been quiet aggressive in Japan Market and seems to be the only India based relevant player. Japan Market is only 30% generics as against 70% for US. So room for volume growth is ample. However, there is a pricing issue in Japan markets. Japanese Govenrment has entered into discussion for an annual price cut as against bi-annual price cut. Also, it plans to procure only from the top-5 players in each therapeutic areas, creating a entry barrier for any company will to undertake portfolio expansion. Lupin believes that it has a very good chance to be amongst the top 5 in its focused CNS therapy. However, I feel Lupin has invested well for Japanese Markets if it has to take off.
Brazil, Philippines, Mexico, Africa and Europe markets have a relatively small base. But Lupin is growing well in all of these markets except EU.
The way I think about Lupin is that it has a very good growing India business which is sticky and branded play, US is a big wager on biosimilar side, specialty should play out well with Methergiene and Solosec (recent acquisition) and complex generics would phase out slower than normal generics. If Japanese Market becomes favourable Lupin will gain well. Maybe valuation might still look expensive at 20x, there is a lot of option value in the company. I personally believe the mgmt has made the right investments to remain a relevant player in the industry and are trying hard to build a Company which is truly driven by R&D and cost competitive.
Disc: Invested
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Valuation of Lupin using DCF
Facts
Net cash flow from operations = 4115 cr
Interest expenses = 152.53 cr
Tax rate = 27.60 %
Net capital expenditure = 1663.00 cr
Post tax interest expense = 110.43 cr
Assumptions
Perpetual growth = 3 %
Discounting rate = 10%
Calculation
FCFF = 2562.43 cr
Valuation = 40266 cr
Market cap on 04-Jan- 2017 = 39730 cr
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