Lupin’s sequential Ebitda recovery in Q2FY23 was largely in line with KIE estimates. Even as we build in a gradual improvement hereon, we stay guarded given the company’s patchy execution track record, slim medium-term US pipeline beyond gSpiriva and subpar margin profile. Nevertheless, at current valuations, closure/divestment of underutilised assets poses an upside risk. Retain ADD with a raised fair value of Rs 750.

Lupin posted revenues of Rs 41.5 bn, flat y-o-y, and 3.2% lower than KIE estimates. Aided by lower R&D, reported Ebitda stood at Rs 4.5 bn, with margins expanding 370 bps q-o-q to 10.9%. Lupin’s US sales at $159 mn grew 31% q-o-q in Q2FY23. We estimate $8 mn sales from gSuprep in Q2FY23 with the management guiding for higher contribution in 2HFY23. Bulk of Lupin’s US portfolio witnessed single-digit price erosion in Q2FY23. According to IQVIA, Lupin’s Q2FY23 domestic secondary Rx sales increased by 6.2% y-o-y, underperforming IPM by 200 bps owing to loss of Cidmus and genericisation of gliptins. While its diabetes franchise will stay depressed in FY2024, Lupin still expects double-digit domestic growth next fiscal.

Lupin’s fortunes over the near to medium term hinge primarily on gSpiriva. Unfortunately, uncertainty around gSpiriva’s approval stays with clarity on the target action date expected in the next two weeks. Lupin continues to be hopeful of launching gSpiriva in Q4FY23.We build in moderate contribution from gPrezista, gDiazepam gel and gNascobal over FY2024-25e.

While freight cost can reduce further, the company has largely exhausted all straightforward levers to meaningfully reduce opex. In our view, considering the excess capacity, divestment/closure of underutilized assets remains the best bet to drive savings. Lupin expects India to grow in double digits in FY2024. It is adding to its sales force. Management commented that diabetes will continue to be suppressed next year, but it will grow GI, CVS and other therapies in double digits.