Rakesh Jhunjhunwala stock Lupin share price 2019 suffers big setback from experts now

Among the favorite stocks of big bull Rakesh Jhunjhunwala is Lupin and it has turned into a nightmare since the start of 2019. The company has received certain observations from USFDA on two of its plants, which has made investors and experts lose their faith in the stock. In fact, rating agency CLSA has recently given a sell call on Lupin shares, which means Jhunjhunwala is set to book further losses in this stock. Lupin is among those stocks, where Jhunjhunwala’s holding are valued above Rs 500 crore, after his most favorite stock Titan, NCC and Escorts among others. At around 1353 hours, Lupin was trading at Rs 727.05 per piece on BSE, down by Rs 7.60 or 1.03%. Interestingly, the stock has already touched an intraday low of Rs 726.30 per piece. With this, Lupin has plunged by over 13% till date in 2019. The stock was trading at over Rs 842 mark on January 01, 2019. 

Lupin’s Somerset plant has come under US FDA regulatory action following an inspection in December 2018. This follows similar regulatory action at its Mandideep plant recently. With this, Lupin has received two regulatory hurdles in less than a month. 

Apart from this, CLSA points out that, OAI increases the probability of a warning letter (history suggests 70% of plants classified as OAI escalate to a warning letter). The Indore Unit-2 and Goa plants are under warning letter and have recently been re-inspected (with six and two observations). With Somerset and Mandideep facing regulatory headwinds, Lupin faces significant regulatory challenges.

CLSA says, “We would note that it has taken c.24 months for a pharma company to resolve warning letter issues. Lupin has guided to resolving the issues at the Goa and Indore Unit-2 plants by 1HFY20.”

Following back-to-back regulatory hurdles, CLSA says, “While current supplies to the US can continue from both sites, future approvals will be kept on hold until the issues have been resolved. This development increases the probability of a warning letter whereas the Indore Unit-2 and Goa plants are already undergoing remedial work to resolve warning letters.”

Thereby, CLSA adds, “We estimate Somerset accounts for 16%-19% of its US sales (5%-7% of overall sales) and c.25% of ANDAs awaiting approvals come from this site. Although no big launches are lined-up for Somerset, we factored-in small launches worth US$30m-US$40m for FY20-21CL.”

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On Lupin stock, CLSA stated that, “We remove these from our estimates leading to a 6%-7% EPS cut for FY20-21CL. We retain our SELL recommendation but with a lower target price Rs730 (previously Rs760).”

Notably, Lupin has already touched CLSA sell target, in fact, has performed even lower than that on Wednesday’s trading session, becoming a risk to many investors including Jhunjhunwala.

The Dalal Street king holds about 1.77% stake in Lupin with 8,023,605 equity shares which are valued currently at Rs 589.5 crore.

Until there is no further relaxation in regulatory hurdles in Lupin’s case, one can expect the stock to tumble even more ahead.