I would stay away from frontline pharma names and selectively look for value in mid-cap names, says Bhavesh Gandhi, AVP-Research, IIFL, talking to ET Now.
A complete write off of Gavis! Whatever Lupin paid for Gavis a couple of years ago, it was an expensive acquisition that time and now they are simply admitting that they messed up.
Yes. Even the scale of write off is close to Rs .1500-odd crore.
Yes, Rs 1494 crore to be precise.
Given the scale, obviously they would have recognised the challenges and either way, we have seen the difficulty in ramping up the Gavis revenue and the hurdles the company has faced. But apart from that, the results were broadly in line, just a few bps in terms of margin beat but I do not think that is substantial or meaningful.
Any word on the US generic business of Lupin? I do not have the income statement with me but can you point out how the US business has moved for them both in terms of margins and historical patterns?
No, unfortunately, I do not have access to the detailed segment-wise breakup. I cannot comment how or what is the top line breakup.
Their sales in US have gone down by about 18%. Now US sales were expected to go down because of price erosion. What kind of numbers were you working with?
I was probably working with the US dollar number - somewhere around $215 million.
Roughly about $207 million. According to the ET Now polls, the stock has been all over the place. It is considerably down from its 52-week high of about Rs 1325. Given how the earnings performance has been, because it is in line, would you revise your price estimates on Lupin?
Probably the earnings estimate would remain the same. I do not think the Q4 numbers warrant any change and I would continue to remain negative on the stock.
Where do we go from here on Lupin? Do you think Lupin is still a hope stock?
The company has been planning forays into specialty and complex generics. As we have seen with all pharma companies, that is taking time and lot of investments on part of the companies. So, for larger companies to have a higher proportion of the specialty business will take time. You need to establish your own brand or alternatively have good assets which are protected in the sense that they are limited competition products. So, yes, migrating the portfolio from regular oral solids to towards specialities would obviously take time.
What will be your pecking order for pharma companies post Lupin results?
I would stay away from some of the frontline names for now and selectively look for some of value in some of the mid-cap names.