Sun Pharma- Raise estimates on Taro consolidation; Hold: Anand Rathi

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Sun Pharma
Raise estimates on Taro consolidation; maintain Hold
 Strong Q2FY11 results. Sun Pharma reported yoy growth of
15.6% in revenue and 3.4% in adjusted net profit. EBITDA
margin slipped 670bp yoy to 34.1% on the lack of Pantaprazole
sales. The growth was chiefly driven by the low Q2FY10 base of
domestic formulations, spill-over sales of Eloxatin from Q1FY11,
sales of Venlafaxine with 180 days exclusivity and the Taro
consolidation for 10 days in Q2FY11.


 Domestic formulations on a strong trajectory. Sun Pharma
reported 36.1% yoy increase in domestic formulations led by key
chronic therapies and the low Q2FY10 base. Even on adjusting
for the base effect, Q2FY11 growth was ~27% yoy (and in
H1FY11 ~25%), much higher than industry growth of ~18%.

 Raise estimates. We consolidate the Taro financials and
incorporate the potential launch of Taxotere in FY12. Hence, we
raise our FY11, FY12 and FY13 revenue estimates 30.1%, 36.8%
and 32.6% respectively and net profit estimates 17.5%, 15.2% and
7%. We also raise estimates on the back of additional sales booked
for Eloxatin in Q2FY11.

 Valuation and risks. We raise our target price to `2,246 from
`2,053 due to rise in base business estimates and the Taro
consolidation. We retain our multiple of 22x for consolidated
earnings of `102.1 a share. We maintain Hold. Downside risk:
Unfavourable judgement on Pantaprazole case; upside risk: FY12-
13 revenue growth in Taro.