Lupin’s strong Q1 FY27 margins face US competition as niche pipeline expands

Investment View and Valuation

Prabhudas Lilladher retained its Accumulate rating on Lupin after a strong Q1 FY27 operating performance, while cautioning that the exceptional earnings momentum of recent years is likely to pause. Lupin’s EBITDA rose about five times between FY23 and FY26, supported by an improved product mix, US niche-product launches, USFDA facility clearances, recovery in domestic formulations and cost optimisation.

However, gTolvaptan, gMirabegron and gSpiriva together account for about 50 per cent of total EPS and face rising competition from Q2 FY27 and FY28. The broker has retained its Rs 2,500 target price, based on 25 times FY28E EPS.

Q1 FY27 Operating Performance

Lupin reported Q1 FY27 revenue of Rs 82,769 mn, up 32.0 per cent year on year and 5.0 per cent above Prabhudas Lilladher’s estimate of Rs 79,042 mn. The beat was driven primarily by Rest of World markets.

India formulations grew 13.9 per cent year on year to Rs 23,796 mn. North America revenue increased 42.9 per cent to Rs 34,348 mn, while emerging markets rose 51.7 per cent to Rs 9,897 mn and other developed markets grew 48.3 per cent to Rs 11,494 mn.

US revenue was US$ 363 mn, down 2 per cent quarter on quarter and below the broker’s US$ 370 mn estimate. gTolvaptan and new launches supported US performance.

Margins, Gross Profit and R&D

EBITDA margin expanded to 29.8 per cent from 26.2 per cent a year earlier and 29.0 per cent in Q4 FY26, aided by gTolvaptan contribution and a favourable product mix. Gross margin remained strong at about 74.6 per cent.

R&D expenditure rose 25 per cent year on year to about Rs 6,077 mn, representing 7.4 per cent of sales. Adjusted PAT increased 16.1 per cent year on year to Rs 14,150 mn and was 9 per cent above the broker’s estimate.

Management Guidance and Product Pipeline

Management guided for FY27 US revenue of US$ 1.1-1.2 bn and a normalised quarterly US revenue run-rate of US$ 250-280 mn. It reiterated an EBITDA-margin guide of 25 per cent amid expected competition.

• Lupin plans more than 50 US launches over the next three years, including 10 first-to-file products, five biosimilars and two to three 505(b)(2) products.
• The FY27 pipeline includes respiratory products, complex injectables and biosimilars.
• Apixaban 505(b)(2) approval is targeted in September, with a potential launch around summer CY27 and a 10-12 month first-mover window.
• Management expects India to outperform the IPM by 1.2-1.3 times, with about 20 launches planned in FY27.

Earnings Outlook

Prabhudas Lilladher expects Lupin’s niche pipeline, biosimilars and 505(b)(2) opportunities to partly offset competitive pressure, but forecasts PAT to decline over FY26-FY28E. The broker cut FY27E and FY28E EPS by 5.6 per cent and 5.0 per cent, respectively, primarily due to higher depreciation.

Key Risks

• Faster-than-expected competition in key US products.
• Execution risks in complex-product and biosimilar launches.
• Continued margin dilution from adjacent businesses.