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Investors like profit growth, but from operations. Lupin shares fell 2.6 per cent on Tuesday despite a 55 per cent growth in net profit to Rs 630 crore. The stock fell on concerns the profitability was driven by other income (mainly foreign currency gains) and a lower tax rate. Net profit growth during the quarter got a Rs 110 crore boost from other income, which was up 35 per cent year-on-year (y-o-y) . In a call with analyst, Lupin clarified the foreign currency gains were only Rs 17 crore and not Rs 85 crore as assumed by the market.
Lupin also clarified the forex gains was Rs 17 crore during the quarter, which was evenly distributed across segments. The market had factored in a forex gain of Rs 85 crore, which led to the stock's fall during the day. The Street was also concerned the forex gains were adjusted above the operating income line, which bumped up the margins.
However, excluding the forex gains, the operating margin would be 26 per cent. The management maintained since it earns in foreign currency, it would not be correct to exclude the forex component from the margins. Lupin is expecting margins to remain within a band of 28-30 per cent. Another factor that contributed to a sharp increase in the profit was a lower tax rate. Against 38.2 per cent in the June quarter, Lupin’s tax rate in the September quarter came in at 23.1 per cent, on better inventory management in the US.
The company is likely to end FY15 with a 22 per cent growth in sales. During the quarter, net sales grew 18.4 per cent y-o-y to Rs 3,116 crore. In the first six months of FY15, Lupin's revenues grew 26.7 per cent to Rs 6,400 crore. During the quarter, its revenues were driven by the domestic formulation business, which grew 19 per cent, and the US business.
During the quarter, the US market grew 23 per cent and the firm has cited seasonality and competitive intensity it is facing in Niaspan. As the product approvals increase, the firm is looking at higher growth and better profitability in FY16.
