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Strategies & Market Trends : India Coffee House

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To: Mohan Marette who wrote (8747)	10/21/1999 9:22:00 PM
From: Mohan Marette	Read Replies (1) of 12475

The other side of LUPIN lupingroup.com THE Lupin Laboratories stock has risen to Rs 435 from Rs 96 in July '99. To boot, it has more than doubled in the last 25 days. But Lupin has announced only a 14 per cent growth in operating profit at Rs 28.86 crore in its results for Q1 ended September '99 against Rs 25.24 crore in Q1 of FY99. Net profit is slightly higher at Rs 12.86 crore against Rs 9.87 crore in the corresponding quarter last year. Lupin's handicap is its high exposure to real estate ? about Rs 130 crore. It has used borrowed money to fund investments in real estate which has resulted in a high interest burden impacting cash flows. It has been capitalising the interest on borrowings for real estate, and as a result, full interest cost is not reflected in the accounts. Despite a net profit of Rs 25 crore in FY 99, it has defaulted to the FIs to the extent of Rs 50 crore. Payment of interest to the banks is being met through borrowings through preference shares and non-convertible debentures. This has resulted in severe liquidity problems and a high debt-equity ratio. The company is a maker of ethambutol, an anti-TB drug. About 47 per cent of turnover comprises anti-TB drugs and 36 per cent cephalosporins. The bulk drugs business, comprising 44 per cent of the turnover, is under pressure due to overcapacitie and the company has been shifting focus to high margin-high volume growth products in the bulk drugs business. The company intends to leverage its strength in the bulk drugs segment while integrating the supply chain for formulations. In view of the high debt burden and cash flow problems, it is unlikely that the scrip would be able to sustain at these levels. The scrip is unlikely to enjoy the high discounting enjoyed by other pharma companies, which have a good research base. Besides, its profitability margins are much lower compared to other formulations companies. (Fe-10/22/99)

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