Lupin Ltd’s stake sale in its Japanese subsidiary Kyowa Pharma has provided a dose of optimism to investors. The sale is expected to free-up capital that will enable the company to strengthen its balance sheet and pare down debt. That lifted the stock 2.33 per cent in early trade today.
Lupin Ltd is selling its 99.82 per cent stake in the subsidiary for a consideration of Rs 3,702 crore in enterprise value, which is considered reasonable. The Japanese generics business environment has become tough lately. Japan government increased the number of price cuts in Japanese drugs from about once in five three years to twice a year. Additionally, analysts note outsourcing to its Indian counterpart has not happened at a higher pace. Hence, operating synergies were restricted. Besides, analysts also note that Lupin’s supply to Kyowa is less than 10 per cent, which is not expected to have a material impact on earnings due to future supply deals.
Read EquityPandit’s Lupin Outlook for the Week