Lupin gains 4% after Morgan Stanley increases target price by 40%

Pharma major Lupin rallied 4.4 percent in morning on April 23 after Morgan Stanley upgraded its rating on the stock to overweight from equal-weight earlier and also increased price target by 40 percent, citing reasonable valuations.

After a sharp fall in earnings and stock price over the past four years, Lupin now appears well positioned for recovery, the global brokerage said, adding niche products should drive an earnings revival in F20-21, and visibility is improving all the way to F23.

Hence, it increased price target to Rs 1,094 from Rs 783 earlier, implying 31.6 percent potential upside from current levels.

The stock rallied 15 percent in the last one month. At 1035 hours IST, it was quoting at Rs 859.10, up Rs 27.55, or 3.31 percent on the BSE.

In the past two years, the share price has fallen 42 percent versus 33 percent gain in the BSE Sensex.

Morgan Stanley believes that earnings concentration risk has normalised and new product catalysts are in sight to revive earnings. It expects Rs 37.0 and Rs 49.7 EPS for FY20 and FY21 (a 52 percent two-year CAGR), which is 7 percent and 15 percent ahead of consensus.

The brokerage said key earnings drivers include complex products in developed markets, steady growth in emerging markets and tight cost control, which together should drive up margins.

In particular, levothyroxine, gProair, bEnbrel for EU and Solosec are key products, each having a large addressable market and limited competition, said Morgan Stanley. It expects these products to yield an incremental $220 million in revenues in FY21 with high margins.

According to brokerage, gSpiriva might be Lupin's next big launch in the US, by 2022, implying these earnings have a long runway to grow.