Lupin - Is it the time to buy for long term

[Rohitsharma]

I did not found any specific topic for LUPIN. Hence opening a new thread. This is my first thread on value picker and I am not an expert in equity analysis (in learning phase). Moderators/Admin please delete the post in case it do not suits the value picker community requirements.

Company Overview :

Lupin Limited is a pharmaceutical company based in Mumbai. It is the seventh-largest company by market capitalization and the 10th-largest generic pharmaceutical company by revenue globally.

Performance matrix :

Revenue breakup-

US Markets :
US revenues surpassed the USD 1 billion mark, closing at USD 1,207 million. a growth of 37% over FY 2016 revenues of USD 883 million.United States remains Lupin’s largest and most important market with 48% share of total revenues.

The Company filed 37 ANDAs and one 505(b) (2) NDA in the US market during FY 2017 and currently has 154 ANDAs pending approval, addressing a total market size of over USD 74.9 billion. Of these, 28 ANDAs are first-to-file opportunities
addressing a market size exceeding USD 13.1 billion. This includes 14 exclusive first-to-file ANDAs targeting a market size of approximately USD 2.6 billion.

INDIAN Markets

During the year ended March 2017, Lupin’s Revenues reached ` 38,157 million, representing growth of
11% over the previous year and 15% CAGR over five-year period. With 3.3% market share, Lupin is the 6th largest player in the Indian Pharmaceutical Market.

JAPAN market:

Japan is Lupin’s 3rd largest market and contributed 10% to our global revenues during FY 2017.

TAX rate:

Company recorded Earnings per Share (EPS) of ` 56.69 during FY 2017. The Company’s effective tax rate for FY 2017 was 27.6%.

Risks :
Regulatory Risks : Recently US FDA issues warning letter to Lupin’s manufacturing facilities at Goa and Indore for violation of good manufacturing practices.

Debt approx 7900 crores. However Debt to equity ratio is approx .6

Stock has corrected approx 60% from All time high of 2100 to 830 in last 2-3 years. Whole pharma sector is in trouble from last 1-2 years , but I want to see if this can be a buying opportunity keeping holding period of 10+ years (expecting 12-15% CAGR return) considering managment is v good and they will come out of all troubles in long term.

Request people to share views on it.

Info Source - Annual report 2017
Disc : Invested

[abhi2525]

Thanks for the thread. The promoters seems to be buying aggressively from open market at around 830 levels. Looks like a case of bad times a good industry hammering even the best of players - A definite good entry point.

Invested, views may be biased.

[devaki.tripathy]

Thanks Rohit for starting the thread. Started tracking with a small position from around 840 levels. Seems fairly valued at this point, but not grossly undervalued. One more thing I have seen is : Just like an upmove does not end with a sharp rise, a down move too does not end with a sharp fall. Generally there are aftershocks after a big move. Waiting to add more at every fall.

Promoter buying information is not available in public domain. (Actually it is available, thanks to the info by Abhi2525) If the promoters are buying heavily, some big investor is selling heavily too, otherwise the scrip would have moved upward. So at this point won’t give too much importance to it.

Guidance and opinion of veterans and fellow boarders would be helpful.

Disc. Views are definitely biased.

[abhi2525]

It is available in public domain sir. Just go to BSE website and look at disclosures.

Big investors like funds are not a great indicator anyway. But yes, we all need to do our own diligence before buying.

[vasuadiga]

Insider Trading for Lupin: http://www.bseindia.com/stock-share-price/stockreach_insidertrade_new.aspx?scripcode=500257&expandable=2

Not sure if Rakesh Jhunjunwala’s stake in Lupin has increased / reduced / still remains the same.

I like the management - competent, transparent and ethical. Gupta siblings (Vinita & Nilesh Gupta) are 2nd Gen entrepreneurs. No big promises…they have been talking about uptick only in 2020.

Pharma sector is in doldrums for now. This investment can go sour only if there’s a big disruptive trend in Pharma sector. Apart from generics, Lupin intends to focus on mainly on complex generics & specialty drugs along with inhalations, devices and biosimilars.

As an aside, Basant Maheshwari was gung-ho about Pharma stocks a couple of years ago (and burnt his fingers, I guess). Looks like he was 2 years too early. He was mainly bullish about B2B Pharma (like Granules India) at that time.

Disc: Heavily invested.

[AVINASHNARASIMHA]

Do we know if they will get an import alert?

[ashprit]

Recently PPFAS MF has also taken a small position in Lupin. These guys are value investors and have very conservative investment style. However they bought before last big drop.

[Rohitsharma]

Promoters have bought few lakhs shares. My question is how much importance one should give to promoter buying , while making an investment decision and putting a big amount from ones kitty. Promoters have increased holdings from 45.29 to 45.39% , an increase of .1% (approx 35-40 crores in INR)…for common people like us it can be a big amount but if we see from promoters perspective it can be a v small amount. Shall we also start building the position based on this ?

I remember last year I bought Glenmark because glenmark promoters were buying , but after that stock tanked approx 25-30%. So I am very skeptical about promoter buying. Seniors please share your views.

Also one will have to consider the opportunity cost , that one can buy other stocks in ongoing bull market which are rising.
Its a difficult decision to make. Seniors please share your views.

[Alphin]

When we make a investment, we have to consider our bias which may distort the true picture.

Now imagine the same biases magnified multifold when promoters buy the same company they have grown from scratch/ or is a family jewel.

I don’t know about the potential of lupin as a investment, but we need to see if promoter buying is based on any upcoming good news. It might be good to forego some profits till numbers show margin of safety.

[Millennial_Investor]

Although I am big fan of promotors buying, the 0.1% doesn’t mean much or at least not enough to take it as a serious buy. However, if the buying keeps going on for next 6 months as they expect better results starting 2019, then definitely it is something to ponder on.

Their con call was quite informative and the management seems to be confident even after the price suppression and potential competition in coming years.

Disclosure: Invested (heavily), after the recent fall.

[hardikca]

@Millennial_Investor

the 0.1% doesn’t mean much

Promoters have bought 10,82,217 shares (Rs. 95.75 cr.) from Aug. 2017 onwards. This is 0.24% of the total shares outstanding.

Discl. Not invested

[valuedude75]

With the overall pharma sector facing head winds - this might be the right time to start reviewing individual shares for a long term buy and hold. Personally, I think we are still at least a few quarters away from seeing the other end of the tunnel - so there might be more pain in the offing.

Disclosure: Not invested - but doing the due diligence and watching this thread closely

[arunsg]

I am no technical expert, but the chart seems to indicate a fall upto 500 levels seems possible.

. Would like to hear views from @Mehnazfatima or @hitesh2710 for their technical insights.

This article paints a bleak picture about the entire pharma industry. Note that this article is about Innovator companies and may or may not be entirely applicable to Indian pharma industry. In fact, this article may represent an opportunity for the Indian industry, but something to watch out for.

Pharma's broken business model - Part 1: An industry on the brink of terminal...

[devaki.tripathy]

Interesting article, though not sure how it will affect in Indian context.

[kv1]

Why would it represent opportunity for Indian Pharma? If bumper drugs reduce so would the off-patent opportunity. As I see it, without significant new drugs coming to market, in steady state with plenty of competition ROEs of generic companies must fall as well.

[zoro99]

@arunsg Cud u pls point few things in chart which u feel indicate a fall upto 500 levels ?

[kdjolly]

Interesting viewpoint by livemint, written 3 weeks ago but I read today and thought of sharing it here.

Warning letter to Lupin signals pharma remains a regulatory minefield

[devaki.tripathy]

For Lupin, the bad news flow is not stopping at all. Here is another one today.

[Rohitsharma]

Value Investing looks easy but its v difficult to follow. Its very painful to see stock going down regularly when whole market is on rise. But as they say buy when their is blood on the street. Promoter buying is bringing solace in this case.

Disc : Invested

[khushi]

still some pain left in the stock. I expect it to fall by another 10 % as when market corrects, it will also correct a bit.

700 can be a reasonable entry level and can be added more on declines around 650.