How did Lupin report such a solid growth in net profits in a tough year?

Profits of Lupin improved despite a tepid operating performance due to tax credits in the quarter. But will come back to that later and let us first look at the top line picture of Lupin. For the Dec-21 quarter, Lupin reported 3.57% growth in sales at Rs.4,161 crore on a yoy consolidated basis. On a sequential basis, the revenues were up by 1.70% over the September 2021 quarter showing limited sales momentum on high frequency measures.

The North America sales grew 9.4% yoy while India sales grew 7.8% yoy. It was EMEA that saw tepid growth in the quarter. Formulations business saw 7.2% while the API business saw sales falling -25.4% due to pricing pressures in the US market. In fact, India sales fell by -4.5% on sequential basis and only the US reported strong growth in revenues on a yoy basis during the Dec-21 quarter. The company spent Rs.355cr on R&D or nearly 8.7% of sales.

Operating profits took a big hit on higher operating costs. EBITDA was down -49.5% on yoy basis on sharply higher operating costs. During the quarter, the material costs were up 23.2% yoy while manufacturing and other costs were up 20% yoy, despite inventory efficiency gains and cost optimizations. Operating margins tapered from 13.3% in the Dec-20 quarter to just about 4% in the Dec-21 quarter. Operating pressure was obvious.

How did net profits grow then? PAT for Dec-21 quarter was up 24.48% yoy at Rs.546 crore due to the benefit of a deferred tax credit of Rs.524 crore in Q3. In the absence of the tax credit, the profits would have been very small in the quarter. PAT margins for Dec-21 quarter improved from 10.91% in the Dec-20 quarter to 13.11%. The exceptional gains from the tax credit write back was the sold reason for the impressive growth in profits of Lupin.