Sun Pharmaceuticals
(SUNP IN, Rs2,029, Outperform, TP: Rs2,000)
Key takeaways
Taro acquisition: Sun is targeting efficiency increase coupled with topline growth for Taro. Sun
also will introduce Taro products to Indian markets. Sun Pharma acquired a controlling stake in
Taro. With this Sun's economic stake in Taro has increased to 48.7% and its voting rights to
65.8%. It has also settled all outstanding litigations with Taro and its directors. The US is the
largest market for Taro, accounting for 75% of its revenue. Roughly 60% of Taro's revenue comes
from dermatological products, with a rich mix of topical ointments and steroids that face limited
competition due to manufacturing complexity.
Management said Caraco continues to work with the FDA to effectively resolve the cGMP
compliance concern, though has not disclosed any specific timelines for this.
Currently the cash position is US$800m prior Taro acquisition. Management said it might look for
some acquisition in the US in future.
Sun will continue focus on five therapeutic areas – cardiology, psychiatry, neurology,
gastroenterology and diabetology.
Management maintains the FY11 growth guidance of 18-20%. It expects R&D expenditure to be in
the range of 7-8% of the net sales.
Our view
After adjusting for exclusivity and Taro value, Sun is trading at 22x FY12E earnings. Sun’s longterm
fundamentals remain intact, and we believe a strong balance sheet provides room for
strategic alternatives. Outperform maintained with a target price of Rs2,000.
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