Introduction: Lupin Limited (BSE:500257) is an Indian Pharma stock. In terms of Market Cap, Lupin Ltd is the 5th largest stock after Sun Pharma, Cadila, Cipla and Piramal.
Lupin Limited is also among the Top 100 stocks of Indian stock market in terms of Market Capitalization. Lupin currently ranks as high as 64 in list of top 100 stocks.
Lupin has also been featured in the list of top 2000 world’s biggest companies by Forbes.
Lupin’s net sales is Rs.12,700 Crore. This makes it the biggest pharma company in India in terms of sales volume.
Lupin’s net profit is Rs.3,141 Crore. This again makes it the biggest pharma company in India in terms of net profit.
As quoted in Wikipedia, Lupin is the fifth biggest “generic drug” manufacturer in the US.
Desh Bandhu Gupta is the Founder of Lupin. He started Lupin in 1968. Since then, he pioneered Lupin to become the “global pharmacutecial major” as it is seen today.
Lupin has presence in over 100 countries across the globe. It is one of the India’s most renowned and respected global MNC’s.
Recently in June’2017, Desh Bandu Gupta passed away at the age of 79.
Currently Lupin Ltd is managed by Vinita Gupta-50 (CEO) and Nilesh Gupta-44 (Managing Director). They both are daughter and son respectively of the late Desh Bandhu Gupta.
Lupin Limited is a company which is based in Mumbai. Once, Lupin was the world’s biggest manufacturer of Tuberculosis drugs.
Lupin has manufacturing facility in Anklaeshwar, Tarapur, Mandideep, Indore, and Vishakapatnam.
Being Lupin Limited, as I see it from a layman’s eyes, it is a big, Indian, Multinational company.
Being a market leader in terms of Sales and Profits in India, it deserves an attention.
But see how its stock price has behaved in last 5 years:
In year 2013, stock price of Lupin Limited was Rs.905.
By the year 2015, stock price of Lupin Limited jumped to Rs.2,100 (CAGR : 52.3%).
Today in Oct’2017, the stock price of Lupin Limited is trading at Rs.1,110 levels (CAGR : -27.29%).
In last one year (since Oct’16), the stock price of Lupin has fallen from Rs.1500 to Rs1,110 levels (CAGR: -14%).
Such big fall in last 2 years prompted me to check the business fundamentals of Lupin.
The result is presented for your information.
Lupin’s stock price vs business fundamentals (5Y Data)
Till year Apr’2015, Lupin share price was bullish. It was almost consistently moving up.
The turbulence started in Apr’15 and continued till Oct’15. Since then (2 years) the stock price of Lupin has only been tumbling down and down (2100 to 1110 levels).
But the point worth noting is that, Lupin continues to be the biggest pharma stock in India in terms of Income and net profits.
Moreover, the business fundamentals of Lupin is also not bad at all.
See this comparison between Lupin share price and its business:
Share Price: falling post Oct’15
Reserves & Surplus: Continuously increasing since past 5 years (Mar’13). Growth rate has been good at 25.29% per annum.
Income (Turnover): Continuously increasing since past 5 years (Mar’13). Growth rate has been decent at 12.44% per annum.
Net Profit (PAT): Continuously increasing since past 5 years (Mar’13). Growth rate has been good at 20.04% per annum.
Equity dividend payout: Continuously increasing since past 5 years (Mar’13). Growth rate has been decent at 12.64% per annum.
EPS: Continuously increasing since past 5 years (Mar’13). Growth rate has been good at 19.82% per annum.
Looking at this chart, it looks almost surprising that why Lupin’s price suddenly started falling since Apr’15. Even though the reported number for next 2 financial years (Mar’16 and Mar’17) has been encouraging.
It is possible that market saw something in advance which Lupin’s numbers were not showing?
Lupin’s stock price vs business fundamentals (after Mar’17)
The results of Lupin for the first quarter (June’17) is available in bseindia.com website.
If we will see Lupin’s quarterly results for the last 5 quarters, the fall in price looks justified.
In last 5 quarters, Sensex jumped from 27,000 levels to 33,000 levels (CAGR: 22.2%).
So it means that the mood of the market was buoyant. But Lupin has faired bad, or at least we can comment that it was not as good as Sensex.
[P.Note: Lupin is one of the constituent of S&P BSE Sensex’s 32 stocks]
Income (Turnover): Decreasing since past 5 quarters (June’16). Growth rate has been negative at -6.97% per annum.
Net Profit (PAT): Decreasing since past 5 quarters (June’16). Growth rate has been negative at -19.99% per annum.
EPS: Decreasing since past 5 quarters (June’16). Growth rate has been negative at -20.02% per annum.
Stock Analysis of Lupin Limited
My readers are aware that on getmoneyrich, a stock analysis worksheet is also offered for the readers helping them to learn the process of fundamental analysis of Indian stocks.
I have used this worksheet to do some number crunching for Lupin Ltd.
Allow me to share some of my observations about lupin.
#1. Price Earning (P/E) & Price Book value (P/B) Ratio:
P/E & P/B ratio is one excellent stock metric which gives us a quick idea of stocks current price valuation.
As a thumb rule, a stock whose P/E ratio is above 15 is considered expensive. A stock whose P/B is above 1.5 is also considered expensive.
But this thumb rule has now become obsolete.
Hence it is essential to use other, more relevant, comparator.
The stock analysis worksheet compared Lupin’s P/E with its industries (Pharma) P/E ratio to get an idea about its price valuation.
The stock analysis worksheet also compared Lupin’s P/E and P/B with its Sensex’s overall P/E & P/B ratio to get an idea about its price valuation.
The result was like this:
Compared to Industry and Sensex P/E ratio, Lupin looks better priced.
Compared to Sensex P/B ratio, Lupin is expensive.
#2. Simple Moving Average (SMA):
Analyzing stock price based on SMA is part of technical analysis.
Not many investors who practice fundamental analysis will agree with use of SMA here.
But I personally feel comfortable in including a tinge of technical analysis in my stock research.
It gives me a better feel of how the stock price has been moving in the past as compared to today’s price.
When we look at SMA (200, 150, 50 & 30 day) and compare it with current price, the trend is very clear. The price has been gradually falling.
For me, SMA is like a fire alarm.
If SMA is showing a growing trend, I become cautious about the stock price being overvalued.
If SMA is showing a falling trend, I become cautious and dig deeper into the cause of such price fall.
In last 200 days, price of a big stock like Lupin has only been falling. Such consistent price falls makes stock price fall below its intrinsic value.
#3. Intrinsic Value:
This is the heart of my stock analysis worksheet.
Though I am no expert of estimating intrinsic value of companies, but still this worksheet works for me.
It gives me a rough idea of what should be the possible intrinsic value of a particular stock.
If I feel that the calculated intrinsic value of stock is not good, still this worksheet gives me enough feedback about the stock.
The first feedback that intrinsic value calculation highlights is the companies ability to generate free cash flow.
Using this worksheet I could understand that Lupin has been generating substantial free cash flow in last 5 years. As a result, it is most likely to generate equivalent free cash flows in times to come (next 10 years).
A company which is not able to generate positive free cash flow is very dangerous.
Another benefit of estimating free cash flow and terminal value of a company is that, it eventually leads to the ultimate objective of estimating the intrinsic value of stock.
Using this worksheet, I could understand that the current Lupin share price is undervalued.
The intrinsic value verses current Lupin share price looks like this:
#4. Overall Rating of Lupin:
This is the best part of my stock analysis worksheet. It consolidates the results and give line, clear answer.
The worksheet has analyzed Lupin based on the following parameters.
* Price Valuation
* Business Fundamentals
* Profitability &
* Price history
Though this worksheet gives more weightage on Price valuation and Business fundamentals, but it also considers companies profitability and price history.
For Lupin the overall grading is very good.
Any stock which is fundamentally strong and displays undervalued market price, this worksheet will give it high grades.
Even though the price history of Lupin has not been good, but still based on its business fundamentals, my worksheet has given good ratings to Lupin.
The overall results looks like this:
Lupin share price is falling because…
Lupin’s consolidated turnover is heavily dependent on its USA market. In last couple of years, Lupin’s USA market share has been on decline.
USA has imposed bans and sanctions on several FDA-approved pharma plants located in India. Allegedly, Lupin’s Indore and Goa facility has also been found to be violating the good manufacturing practices.
How must of this is true, only FDA and Lupin can say, but it is true that off late all Indian Pharma companies operating in USA has been under huge pressure.
In 2008, India’s biggest Pharma company Ranbaxy was found violating FDA norms. After that event, all Indian based Pharma companies had to face the hard music of FDA.
Lupin’s Goa facility also came under scrutiny. But as reported by NDTV its GOA facility is likely to get final clearance soon.
Lupin’s Indore facility has also been issued Form 483 (non compliance) by the FDA.
These are major setbacks that Lupin is facing currently which is badly hurting its USA sales.
Even in India, GST has negatively impacted Lupins net profits.
Lupin in times to come…
Lupin Limited has taken over Symbiomix Therapeutics LLC. This will certainly help improve the companies market share (15%-20%) in next 2-3 years.
Lupin is a big company. It is not one of those stocks which will loose its shine due to competition, tough FDA norms, GST etc.
They are more likely to fight back and regain their market share and profitability. It may take some time, but not more than 2-3 years.
I personally consider that, presently Lupin is trading at undervalued levels.
It is a good time to board the bus, and hold on to it for long term.