Lupin Q2FY22 reflects more work needed on margins front and business realignmentLUPIN - 621 Change: -12.80 (-2.02 %)
What’s Buzzing:Lupin’s Q2FY22 performance was skewed. While revenues were in-line, both margins and profitability were a miss due to US specialty restructuring, provisioning for Glumetza class actions and Impairment expense for Solosec.
Context:Revenues grew 6.7% YoY to Rs.4091.3 crore (I-direct estimate: Rs.3988.5 crore) wherein domestic formulations grew 15.9% YoY to Rs.1543.5 crore (I-direct estimate: Rs.1524.2 crore). US revenues grew 2.2% YoY to Rs.1429.1 crore (I-direct estimate: Rs.1299.3 crore) while South Africa business grew 36.5% YoY to Rs.182.6 crore (I-direct estimate: Rs.182.6 crore) and RoW markets grew 18% YoY to Rs.414.6 crore (I-direct estimate: Rs.404 crore). Amid higher base, API de-grew 28.4% YoY to Rs.267.8 crore (I-direct estimate: Rs.336.5 crore). EBITDA margins remained subpar at ~13.8%, down 138 bps YoY mainly due to rise in raw material and employee expenses. EBITDA de-grew 3% YoY to Rs.563.7 crore due to one-time costs related to US specialty restructuring.
Our perspective: Resolution of warning letters and clearance of Official Action Indicated (OAIs) status on plants could be the near term overhang along with progress on the margins front. Growth in India to remain consistent and like other pharma majors, Lupin has also taken steps to scaled down the specialty burn for margin improvement through sustainable growth and cost optimisation.