Lupin - 8th March

Today's Opening - 798

Today's High - 800

Today's Low - 775

Today's Closing - 779

I am writing on this stock after a gap of nine months.

Negative closing today, with volumes on the higher side. The 14-day Negative Directional Index still remains stronger than the Positive Directional Index since 5th Feb. However, the gap has reduced considerably over the past two weeks.

The 12, 26-day Moving Average Convergence Divergence has been negative since 7th Feb. The 2-day Relative Strength Index has pulled up above 30 since 21st Feb.
After more than four weeks, the 20-day Commodity Channel Index has turned positive over the past three days.

After breaking the 5-day Exponential Moving Average for five days, the closing has again been below the 5-day EMA today. This is not an encouraging sign.

Corporate Activity:
Lupin has reported Q3 loss of Rs 152 cr, on a one-time expense of Rs 342 cr. This is on account of the provision made towards the unfavorable judgement delivered in Dec 2018 by the General Court of European Union concerning the company's appeal against the European Commission's (EC) 2014 decision in a litigation. The company is liable to pay a fine of Rs 342 cr, including interest. The company though is likely to contest the Europe Court's decision.
US Sales contributes around 38% to Lupin's overall revenue. In Q3, the US Sales fell 1% on a YoY basis. The warning letter on two of its facilities in Goa and Indore are not helping matters in terms of new product approvals. Both the units are under USFDA's warning letter since Nov 2017.
At the end of every inspection, the USFDA issues its observations on any deviations from current Good Manufacturing Practices (cGMP) on Form 483. Companies will have to respond with corrective and preventive action plan to these observations within 15 days of the receipt of Form 483. The US drug regulator, after inspecting the two sites in 2017 had expressed concerns over quality control procedures that include handling of Out-Of-Specification (OOS) results and conducting hold-time studies. Lupin completed an extensive remediation of both its plants, and invited the USFDA for re-inspection this year and yet few observations were reported.
The company had a major US launch on 27th Feb in the form of generic Ranolazine used in the treatment of chest pain. Lupin enjoys a three months marketing exclusivity and is expected to generate sales of $50-60 million from this product.
Another major US launch scheduled for March-end is of generic Levothyroxine, a thyroid hormone used to treat hypothyroidism, a complex product expected to have limited competition for several quarters. It is expected to generate $65 million in FY 2020, increasing to $80 million by FY 2021.
Beyond these two, the company has given a guidance of 21 launches in FY '20 in the US market.

Stock Movement:  

In my post on 7th June, I had mentioned that 745 is a strong support for Lupin and the stock is poised for a bull run. I had mentioned that 799 was a key resistance level and once broken, the stock can run upto 843 and then 970. The stock actually crossed 843 on 13th June and even crossed 970 on 10th Sep.
However, the stock could not sustain above 970 and has actually lost almost 4% over the past nine months. Once again, the stock is taking support at 745-750 which is its long-term support level. After failing to sustain above the crucial resistance level of 799, the stock has gone back to 779 levels.

In case 799 gets taken conclusively, the stock can run up to 850-852. Having said that, the stock is showing no signs of a trend reversal. In case 745-750 gets broken on the lower side, the stock can come down to 723-727. With limited downside risk, keep accumulating on every dip from a long-term perspective.