Lupin Tanks 17% After UFDA Warning, Should you Buy?

Recently, the pharma major Lupin (opened at 1037 and closed at 860.10) was reported 31.28 percent year-on-year fall in consolidated net profit that stuck at 455 crore for the quarter ending September 30,2017 as against the last year which was 662.19 crore. To pour oil on the trouble now the USFDA has issued a strong concern against its manufacturing facilities in Goa and Pithampur, Indore. Let’s dive into the deep details!

The company has issued three form 483 observation for its Goa unit on April 7, 2017 and six form 483 observation for its Pithampur unit.

What’s the major reason behind it?

Though the company has declined to comment about the specific reason, but certainly a stern warning has been issued to them.

“The company has received a warning letter issued by the United States Food and Drug Administration (USFDA) on November 6, 2017 for our formulation manufacturing facilities at Goa and Indore (Pithampur Unit II)”, Lupin said in a filing to BSE.

Will there be any gap in demand and supply?

Well, the company is deeply disappointed about the outcome, but it has confirmed that there will not be any disruption of the product supplies from either of the location. Though there will be a delay for the new product approvals.

How has Lupin reacted to it?

Lupin has not shared its concerns with the public but it is believed that sooner or later the concerns will be addressed.

How has it affected the Indian stock market?

The stern warning has not only perturbed Lupin, but other pharma companies also. The pharma stocks like Sun Pharmaceutical Laboratories has registered the downfall by 0.42 percent, Piramal Enterprise by 0.41 percent, Lupin by 0.34 percent, Divis Laboratories down by 0.34 percent and Glenmark Pharmaceuticals by 0.09 percent. All the pharma stocks were trading in a negative zone. The overall Nifty pharma index was down by 0.16 percent. However, the shares of Cipla and Aurobindo Pharma, and Glaxo were trading up at that time.

So, should the investors invest in it?

MACD, the momentum indicator has signaled the bearish attitude towards this stock. However, considering the oversold conditions, one can consider a short-term buy.