Shares of Lupin slipped two percent on Wednesday as sombre commentary from brokerage firms, despite a positive development, weighed on the sentiment for the stock.
A knee jerk reaction after the company said its Goa unit received Establishment Inspection Report (EIR) from the US Food and Drug Administration (US FDA) had led the stock to settle about 7 percent higher on Tuesday. However, the dull brokerage commentary pulled the stock lower today.
The unit has been in news since 2017 when they were issued observations by US FDA. It escalated to a warning letter after which re-inspection has taken place a couple of months back - resulting in 7 observations issued to the company.
The EIR now indicates that it is a voluntary action indicated (VAI) which means that Lupin will be solving these observations on their own.
Reacting to the positive news, CLSA said that the Goa Plant receiving EIR from the US FDA is positive news but the importance of the plant has declined over the years.
Resolution for the Goa plant may not have any material impact on US growth and earnings but clearance of Pithampur-II and Somerset are more important from the US perspective, CLSA added.
Motilal Oswal Financial Services said, "While regulatory clearance removes a key overhang on the Goa facility, we maintain our Neutral rating as valuation leaves limited upside from current levels".
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The domestic brokerage believes the current valuations adequately factors in healthy compounded annual growth rate of earnings and also bakes in favourable regulatory outcome.
Meanwhile, some analysts believe that this regulatory clearance would accelerate the efforts to resolve issues at other sites as well.
ICICI Direct Research is of the view that the regulatory clearance could provide a significant respite in Lupin’s intense drive to address pending
compliance issues.
"We maintain 'hold' as key addressable issues such as progress on the
margins front, pricing pressure and competition in key US products besides
pending resolution at other key plants still continue to weigh," ICICI Direct Research added.
The brokerage has highlighted that resolution of pending regulatory issues in other key plants will be a trigger for an upside in the stock.
At 11:31 am, the stock was down 1.9 percent at Rs 925.25 on BSE. The stock has fallen after two days of consecutive gain.
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