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Sun Pharmaceutical
Industries
Impressive 2Q Earnings Beat,
Raising PT to Rs2,502
What's Changed
Price Target Rs2,305.00 to Rs2,502.00
We reiterate our OW rating on the stock: We expect a
sharp earnings ramp-up for Sun in F12, driven by strong
base business, Taro consolidation, and Taxotere
monetization (Fielding Taxotere Questions – October 11,
2010). We think this should be sustained in F13 with
long duration niche opportunities. We raise our F12
EPS estimate 4.5% to Rs114.7; F13 rise 5.0% to
Rs123.6. We are 30% and 14% ahead of consensus.
Solid F2Q11 results – due to strength in the base
business and higher financial income: Significant
one-offs (Protonix, Eloxatin, Forest) make both YoY and
QoQ comps (high base) invalid. Yet, just for comparison
– Sun reported a 15.6% yoy rise in sales and 370bps
OPM compression to 34.1%. Together this led to an
11% rise in profits to Rs5.04 bln (our estimate – Rs3.98
bln). Importantly, since several of the niche
opportunities are longer duration continuing
opportunities, we believe that Sun’s base business
quarterly profits have taken a step jump to Rs4.3-4.5 bln
(ex Taro).
Key takeaways from earnings call: Management has
upgraded its F11 sales growth guidance to 35% (from
18-20%) to reflect Taro consolidation in F2H11. Taro –
Sun expects to generate 20-25% return on its
investment. Taxotere – Sun expects to utilize Hospira’s
favourable ruling for its own court case. However, it
could miss the 14 Nov 2010 timeline to get its NDA
approved.
What’s next: Taxotere developments (court case
dismissal, NDA approval and market launch), Taro
integration and market share trends (Effexor XR,
bupropion, Exelon and Optivar) are the focus items.
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