Lupin Limited (Lupin) reported a 7.9% decline in its total sales (including operating income) to Rs. 3, 952 crore (lower than our expectation of Rs. 4, 167 crore) for 2QFY2018. Operating profit declined by 17% to Rs. 853.1 crore (marginally lower than our expectation of Rs. 865 crore) and adjusted profit declined by 31.2% to Rs. 455.1 crore (above our expectation of Rs. 425 crore). Performance for the quarter was mainly impacted by the 31.9% decline in U.S. revenue due to increased competition in gGlumetza and gFortamet and increasing pricing pressure due to consolidation of players in the U.S.
Nevertheless, potential resolution of Goa and Indore plant inspection in the near term along with key upcoming launches could help drive growth from FY2019/FY2020E. Further, price correction of over 25% in the past six months mostly factors the weak FY2018 and other nearterm negatives. Hence, given the reasonable valuation of 15.8x FY2020E earnings, we do not expect material downside from current levels. Hence, we upgrade our rating to Hold and revise our target price (TP) to Rs. 1, 050 (valuing the stock at 16x FY2020E earnings).