Lupin Ltd 2017 financial results

Lupin came out with its results day before yesterday. The stock price fell down by 7% on its Q4 figures and investors were dumping them out of their portfolios. Pharmaceutical sector similar to IT sector of India is today finding hard to grow their revenues and hold their margins.

What do we think about Lupin?

Q4 – 2017 results

Businesses are not static in nature. They keep changing. The rules change, law changes and also the margins and profits. Lupin generates US$2.7 billion from its business operations. Let us look at how its 4th quarter numbers look.

Lupin Ltd Q4 – 2017 Q3 – 2017 Q4 – 2016 % Change Q4 Vs Q3 % change Q4 Vs Q4
Revenues Rs 4,298.64 Rs 4,586.45 Rs 4,232.31 -6.28% 1.57%
EBT Rs 518.67 Rs 1,042.57 Rs 1,169.89 -50.25% -55.67%
Net Profits Rs 380.21 Rs 633.11 Rs 747.88 -39.95% -49.16%

 

The results look very ugly for the fourth quarter and we can now understand why Mr. Rakesh Jhunjunwalla was upset on the management. We found out about it from the Moneycontrol website.

The management phone interview with CNBC TV18 channel points towards the structural changes taking place within the pharmaceutical sector and stiff competition to it’s one of the star product ‘Glumetza’ is facing.

Investing looking through the rear view mirror is risky. Expecting them to repeat the same performance is the wrong expectation from a fast paced and always changing industry. As per the vice chairman Mr Kamal Sharma the 2018 results will be a bit in pressure but they do expect to breakthrough from this situation by investing and manufacturing specialty products in the years ahead. To buy this story you will have to do a bit of reading on what he is talking about and build your own investment conviction with this brand.

Cashflow

Let us look at how good they managed and allocated shareholders cash looking at their balance sheet.

Lupin Ltd 2017 2016 difference
Cash Rs 681.83 Rs 792.66 -110.83
(LESS) Short Term Borrowings Rs 2,304.33 Rs 1,745.41 -558.92
(LESS) Long Term Borrowings Rs 5,647.78 Rs 5,373.90 -273.88
(LESS) Fresh Equity injected Rs 13,532.09 Rs 11,195.45 -2,336.64
(ADD) Dividends paid Rs 338.70 + 338.7
Cash Profits     -2,941.57

 

So Lupin Ltd bank balance has fallen down by Rs 111 crore compare to 2016 financial year. The short term and long term borrowings have also shot up by Rs 559 & Rs 274 crore. They reinvested Rs 2,336.64 shareholders profits back into the business and they paid Rs 339 crore in dividends. End of the day they spent Rs 2,942 crore of cash from their business.

So where did they spent that money on?

They bought new property and plant worth Rs 1,300 crore, the inventories have jumped up by approximately Rs 300 crore, they also invested Rs 2,100 crore which reflects in their current investments and I will have to wait and see all the details about it in the Annual report. Almost Rs 3,500 crore was invested and we should see some kind of earnings to be generated from those investments in the coming years.

Valuations

We valued Lupin Ltd business for the year end 2017 at Rs 733 per share. Our intrinsic value range was between Rs 705 – Rs 1,380 per share for the 2017 financial year. So they ended up close to the lower band of 2017 valuations.

Lupin stock price is still trading within its 2018 valuations band. However, the lower band of valuations are still hanging around Rs 750. So it is definitely expensive to buy 100% of your stock allocation. Our allocation meter suggest not to buy more than 31% at today’s price.

What are you doing with Lupin Ltd?