Axis Direct Issues Contrasting Ratings for Lupin and Mankind Pharma

Axis Direct has recommended an 'Exit / Sell' for Lupin Ltd, projecting peak earnings in Q1 FY27 and anticipating significant margin compression. For Mankind Pharma Ltd, the brokerage firm has issued a 'Buy' rating, citing strong domestic growth and successful synergy realization.

Reader Takeaway: Lupin faces US market challenges; Mankind Pharma shows strong domestic execution and deleveraging.

What just happened

Axis Direct has updated its ratings for two prominent pharmaceutical companies. Lupin Ltd has been assigned an 'Exit / Sell' rating, while Mankind Pharma Ltd has received a 'Buy' recommendation. These ratings are based on the brokerage's analysis of recent financial performance and future outlook.

Why this matters

For investors, these contrasting recommendations signal distinct investment paths. Lupin's projected decline in margins and revenue due to generic competition in the US could impact its stock performance. Conversely, Mankind Pharma's strong domestic growth and successful integration of acquisitions suggest potential for continued earnings growth and stock appreciation.

The backstory

Axis Direct follows a three-stage stock selection process involving idea generation, screening using forensic accounting and qualitative factors, and decision-making focused on growth and intrinsic value.

Lupin Ltd (Exit / Sell)

In Q1 FY27, Lupin reported Net Sales of Rs 8,277 Cr, a 32% year-on-year increase, with EBITDA at Rs 2,450 Cr and a margin of 29.6%. However, management indicated this as the peak performance for the fiscal year. Significant challenges are anticipated in the US market, with projected US revenue declining to $250–280 million quarterly due to price erosion from new generic competition for Tolvaptan and Mirabegron. Axis Direct forecasts EBITDA margins to contract to around 25% for FY27, expecting negative year-on-year earnings growth.

Mankind Pharma Ltd (Buy)

For the same period, Mankind Pharma reported Revenue from Operations of Rs 4,031 Cr, up 12.9% year-on-year, and EBITDA of Rs 1,060 Cr, a 24.7% increase with a 26.3% margin. The company's strong performance in domestic markets, especially in chronic therapies (+15.8% YoY), is a key highlight. The integration of Bharat Serums and Vaccines (BSV) and deleveraging efforts have reduced Net Debt/Adjusted EBITDA to 0.9x from 1.6x YoY. Management has reiterated its FY27 EBITDA margin guidance of 25.5%–26.5%, with the broker expecting continued earnings growth driven by specialty expansion.

What changes now

Investors holding Lupin shares may consider exiting their positions based on the projected headwinds. Those looking for exposure to the pharmaceutical sector might find Mankind Pharma an attractive option given its positive growth drivers and outlook. The recommendations prompt a re-evaluation of current portfolios in the pharma space.

Risks to watch

For Lupin, the primary risks include the severity of price erosion in the US market and potential further compression of margins. For Mankind Pharma, risks could involve execution challenges in integrating acquisitions or unexpected competitive pressures in the domestic market that could affect its growth trajectory or margin guidance.