Back-to-back USFDA inspection, keeps Lupin in a tight spot; Will this favourite stock impact Rakesh Jhunjhunwala’s wealth?

The share price of Lupin on Tuesday reversed its losses and saw a slight revival in their performance. On Sensex, the Lupin shares were trading at Rs 759.35 per piece up by 0.70% at around 1241 hours. However, in the early hours of trading session opening, the Lupin shares touched an intraday high of Rs 765.70 per piece. Interestingly, Lupin is currently in not a very bright spot, especially after back-to-back USFDA inspection carried in its two facilities, first Mandideep and now Somerset. This creates a negative sentiment for Lupin and its investors. But because of this, even Rakesh Jhunjhunwala is set to lose hefty considering Lupin is among his favorite stocks. 

Jhunjhunwala’s wealth in Lupin already took a hit on Monday following the inspection news. Lupin in previous trading session, plunged by over 6%. The real question now is will Lupin hamper the Warren Buffett of India’s wealth ahead. Let’s find out! 

Chirag Talati and Kumar Gaurav analysts at Kotak Institutional Equities said, “LPC announced that its Somerset US facility has received an OAI status from the US FDA, which could potentially trigger a warning letter. With two facilities now under warning letter, and two more receiving OAI status, the development is a clear negative. We believe the impact on FY2020 launches will be limited given that the Gavis pipeline is pretty much concentrated around topicals and C-II products with most of the near-term launches now approved, while FY2021 growth mainly hinges around success in levothyroxine, albuterol and Solosec.”

LPC’s US sales bottomed out in 3QFY19, led by market share gains in several base business products, including lisinopril and cephs basket. 

Following which the duo said, “While there could be potential disruptions due to the FDA actions, we believe the Goa facility could see a faster clearance in 1HFY20, thereby relieving some pressure on OSD launches (20-25 pending from the facility). FY2020/21 recovery now hinges on market share gains in levothyroxine, though we expect sales to ramp up in 2HFY20. Potential approval of ProAir in 4QFY20 (facility is clear) should be a significant trigger.”

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Also, according to Kotak,  most of the FY2020 launches have already been approved, and thus, the near-term impact is likely to be limited. LPC also has a topicals facility in Indore, which can be used for site switches, though, given the potential average sales from its topicals pipeline, we struggle to see the rationale for site switches. 

Thereby, Kotak says, “With LPC already grappling with two existing warning letters for Indore and Goa, and given last week’s OAI notification for Mandideep as well, the development will raise questions on whether the US FDA could view the issues as systemic (we do not think so).”

Talking about share price, analysts at Kotak said, “LPC is now trading at 24X and 17X FY2020/21E EPS, though adjusting for levo, the multiples are 25X and 19X. We believe LPC is now approaching a reasonable valuation, and any sharp correction on the back of regulatory actions could present an attractive entry point. REDUCE.”

Jhunjhunwala in Lupin holds currently 1.77% stake with 8,023,605 equity shares which are worth Rs 630.7 crore. After, Titan and NCC, Jhunjhunwala has most gains in Lupin. His holding in Titan and NCC is now valued at Rs 6,906 crore and Rs 695.9 crore respectively, according to TrendLyne.com data.