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Lupin’s weak margins in Q4 take a toll on the stock

19 May , 2022   By : Kanchan Joshi


Lupin’s weak margins in Q4 take a toll on the stock

Shares of Lupin Ltd fell around 7% on Thursday on the National Stock Exchange. Investors are visibly displeased with the company’s March quarter results announced late on Wednesday.


Margin performance has been a key source of disappointment. “Adjusting for reversal of litigation-related one-time expense (of Rs1.2 crore), Ebitda margin contracted at a higher rate of 1,280 basis points year-on-year to 5.9% (our estimate at 13.4%), due to reduced operating leverage," said a report Motilal Oswal Financial Services Ltd. Ebitda is earnings before interest, tax, depreciation and amortization; an important measure of profitability for companies. One basis point is one-hundredth of a percentage point. Note that other expenses and employee costs as a percentage of sales increased significantly on a year-on-year basis.


The upshot: Lupin’s consolidated Ebitda in Q4 declined a whopping 68% year-on-year to Rs227.6 crore. This at a time when revenues have risen 2.6% to Rs3,883 crore. Lupin derived a significant portion of its revenues from North America and India. Revenue from North America fell 5.3% year-on-year while India saw 5% growth. On the other hand, growth markets and EMEA region clocked 25.6% and 8.6% increase in revenues, respectively.


Overall, Lupin reported a loss for the quarter. “Lupin has taken an expense on account of the impairment of Gavis IPs to the tune of Rs130 crore. Adjusting for the aforementioned exceptional items, Lupin reported a loss of Rs2.4 crore, due to higher tax outgo," said analysts from Motilal Oswal.


Commenting on the results, Nilesh Gupta, managing director, Lupin, said, “The current quarter was challenging with headwinds in the U.S. on account of price erosion, and inflation in input materials and freight."


Taking into account Thursday’s drop, Lupin’s shares are down  33% so far this calendar year. Analysts from ICICI Direct Research said, “We believe, resolution of warning letters and clearance of Official Action Indicated (OAIs) status on plants could be the near term trigger along with progress on the margins front."


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