The company will be evaluated considering a group of 5 peer companies according to the market classifications. Lupin shares relative valuation will be done using our 5-10-5 -star rating methodology (5 companies, 10 parameters, Out of 5 stars). From this, we will arrive at a combined peer rating for the company. Companies considered in this analysis are as follows.
- Divi’s Labs
- Jubilant Life Sciences
- Granules India
- Aarti Drugs
About the Company:
Lupin is based out of Mumbai and is one of the largest generic pharmaceutical companies by revenue globally. The company manufactures a wide range of products such as Branded and Generic Formulations, Biotechnology Products, Active Pharmaceutical Ingredients (APIs) and Specialty drugs. Lupin is a market leader in the therapy areas of Gynaecology, Cardiovascular, Diabetology, Asthma, Paediatric and CNS.
The company operates in the pharmaceutical industry where market dominance is achieved through R&D, regulatory approvals, scale and distribution network. Lupin is the 3rd largest pharma company in India by sales and 8th largest generic company in the world. The company also is the 3rd largest player in the US and 4th largest in South Africa by prescriptions. Lupin further has 15+ manufacturing sites out of which 12 are USFDA approved. On the R&D front, the company has 430+ ANDAs filed and 272+ approved. The R&D spend is around 9.1% of the total revenue.
Read More Here: Lupin Fundamental Analysis and Future Outlook
Get the Excel Dashboard used for this analysis from below:
1. Market Capitalization (★ ★ ★ ★ ☆)
Market capitalization is calculated by multiplying the total number of a company’s outstanding shares by the current market price of one share. Out of the 5 peer companies, Lupin has the second-highest market capitalization followed by Jubilant, Granules and Aarti Drugs. This also shows the second-highest Enterprise Value amongst the peers. Therefore this category gets 4 stars in Lupin shares relative valuation.
2. Price/Earnings Ratio (★ ☆ ☆ ☆ ☆)
The price-earnings ratio is the ratio of a company’s share price to the company’s earnings per share. The ratio is used for valuing companies and to find out whether they are overvalued or undervalued. P/E higher than Industry average means Overvalued and Lower than Industry average means Undervalued. Lupin shares have a Negative P/E and its way below the industry. Therefore this category gets 1 star in Lupin shares relative valuation.
3. Price/Book Value Ratio (★ ★ ★ ★ ☆)
The price-to-book ratio is a financial ratio used to compare a company’s current market price to its book value. Lower than average P/B shows undervalued and higher P/B shows overvalued. Lupin shares have the second-lowest P/B amongst the competitors. Therefore this category gets 4 stars in Lupin shares relative valuation.
4.Dividend Yield (★ ★ ★ ★ ☆)
The dividend yield of a share is the dividend per share, divided by the price per share. This shows how much dividend the company pays out. Dividend yield above-average line is considered good and vice versa. Lupin has the second-highest dividend yield amongst its competitors. Therefore this category gets 4 stars in Lupin shares relative valuation.
5.Price/Sales Ratio (★ ★ ★ ★ ☆)
The price-to-sales ratio calculated by taking a company’s market capitalization (the number of outstanding shares multiplied by the share price) and divide it by the company’s total sales or revenue over the past 12 months. The lower the P/S ratio, the more attractive the investment. Lupin has the second-lowest P/S ratio amongst the competitors which makes its shares highly undervalued on this parameter. Therefore this category gets 4 stars in Lupin shares relative valuation.
6.ROCE (★ ☆ ☆ ☆ ☆)
ROCE is a financial ratio that determines a company’s profitability and the efficiency of capital use. A higher ROCE implies a more economical use of capital and above-average ROCE is considered a good investment. Lupin has the lowest ROCE amongst its competitors and it is also way below the average line. Therefore this category gets 1 star in Lupin shares relative valuation.
7. Return on Assets (★ ☆ ☆ ☆ ☆)
The return on assets shows the percentage of how profitable a company’s assets are in generating revenue. Higher the ROA better is the asset utilization by the company and higher the efficiency. Lupin has the lowest ROA amongst its competitors and it is also below the average line. Therefore this category gets 1 star in Lupin shares relative valuation.
8. Price/ FCF Ratio (★ ★ ★ ★ ★)
This is calculated by dividing market capitalization by free cash flow of the company. A lower value for price to free cash flow indicates that the company is undervalued and its stock is relatively cheap. Lupin has the lowest positive Price/FCF ratio amongst its peers and its way below the Industry average line. This shows that Lupin shares are undervalued on this parameter. Therefore this category gets 5 stars in Lupin shares relative valuation.
9. Earnings Per Share (★ ☆ ☆ ☆ ☆)
Earnings per share (EPS) is a company’s net profit divided by the number of common shares it has outstanding. EPS indicates how much money a company makes for each share of its stock, and is a widely used metric to estimate corporate value. Higher the EPS higher is profitability. Lupin is in the last position with Negative EPS which is way lower than the industry average. Therefore this category gets 1 star in Lupin shares relative valuation.
10.Return on Equity (★ ☆ ☆ ☆ ☆)
Return on equity (ROE) is a measure of financial performance calculated by dividing net income by shareholders’ equity. ROE is considered a measure of how effectively management is using a company’s assets to create profits. Lupin has the lowest ROE amongst the Peers and it’s also negative and below the industry average. Therefore this category gets 1 star in Lupin shares relative valuation.
The overall rating is arrived by taking the average of the above 10 parameter ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5. The stock is undervalued if the rating is above 3 (i.e 4 or 5 stars), it is fairly valued if the rating is around 3 and is overvalued if the rating is below 3 (i.e 2 or 1 star). The ratings are exclusive to each company so more than one company can have the same ratings within the peer group.
Overall Relative Rating:
LUPIN SHARES (2.6/5)
This means the stock is Slightly Over-Valued at the current price levels.
★ ★ ★ ☆ ☆
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|Relative Valuation Summary|
|Market Capitalization||★ ★ ★ ★ ☆|
|Price/ Earnings Ratio||★ ☆ ☆ ☆ ☆|
|Price/ Book Value Ratio||★ ★ ★ ★ ☆|
|Dividend Yield||★ ★ ★ ★ ☆|
|Price to Sales||★ ★ ★ ★ ☆|
|ROCE||★ ☆ ☆ ☆ ☆|
|ROA||★ ☆ ☆ ☆ ☆|
|Price/ Cashflow||★ ★ ★ ★ ★|
|Earnings Per Share||★ ☆ ☆ ☆ ☆|
|ROE||★ ☆ ☆ ☆ ☆|
|Overall Peer Rating||★ ★ ★ ☆ ☆|
(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)