Nuvama Institutional Equities has revised its rating for pharmaceutical major Lupin Ltd, downgrading its shares to 'Hold' from a previous 'Buy' recommendation. This adjustment comes despite Lupin delivering a robust 81% year-on-year (YoY) growth in Profit After Tax (PAT) for the fourth quarter of FY26, exceeding market expectations across key metrics.
The brokerage acknowledged Lupin's strong Q4 performance, noting a gross margin of 75.2% and EBITDA margins reaching 29%. This impressive showing was attributed to a superior product mix in the US market and solid performance in emerging markets. However, Nuvama also trimmed its 12-month target price for the stock.
Future Growth Concerns Prompt Downgrade
Nuvama's decision to downgrade stems from its outlook on Lupin's future trajectory, anticipating FY27 and FY28 to be transitional periods. The firm projects single-digit growth for FY27E and a cooling of EBITDA margins to the 25–26% range. A significant factor highlighted is Lupin's high reliance on key products such as gSpiriva, Tolvaptan, and Mirabegron, which introduces a growing product concentration risk in the near term.
While promising launches like bNeulasta Onpro, bEnbrel, and gDulera are on the horizon, Nuvama views these as opportunities for FY29E, suggesting they won't significantly impact the immediate transitional phase. The brokerage also indicated that increased competition in gSpiriva over the next 12 months would be an unexpected development.
Revised Projections and Target Price
In light of these considerations, Nuvama has marginally raised its FY27E/28E Earnings Per Share (EPS) by 3% and 1% respectively. However, it projects Lupin's revenue, EBITDA, and PAT to grow at a Compound Annual Growth Rate (CAGR) of 4%, -10%, and -12% over FY26–28E. The revised target price from Nuvama is Rs 2,600, a slight increase from its earlier Rs 2,550, yet the downgrade to 'Hold' reflects limited perceived upside after the stock's recent rally.
Conversely, Nomura has maintained a 'Buy' rating on Lupin, assigning a target price of Rs 2,580, indicating a more optimistic view on the company's prospects.
Following Nuvama's downgrade, Lupin's shares were trading 4.88% lower in Monday's trade. Despite this daily dip, the stock has shown resilience over the past six months, recording a 14.48% increase.