Sun Pharma-Taro and Taxotere strengthen outlook: UBS

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UBS Investment Research
Sun Pharma
Taro and Taxotere strengthen outlook
􀂄 Maintain Neutral; strong outlook reflected in the share price
We think the strong share price rally following the favourable Israeli Supreme
Court judgement on the Taro deal is priced in. We assume significant improvement
in Taro EBITDA margins, from 24% in FY11 to 34% in FY13. Taro contributes
Rs3.4/10.1/12.1 to our FY11/12/13 EPS estimates. We raise our price target from
Rs2,250 to Rs2,550 on our higher our earnings forecasts. We continue to rate Sun
Pharma Neutral, because of limited upside to our price target.


􀂄 Potential Taxotere launch boosts FY12 outlook
In the Q2 FY11 conference call, management stated that although it expects a
favourable ruling for Taxotere in the Apotex/Hospira case, it might not be able to
launch the product on patent expiry in November 2010. We raise our Taxotere
revenue forecast from US$0/44m to US$100/80m for FY12/13. Taxotere
contributes Rs13/10.5 or 12%/8% of our FY12/13 EPS estimates.

􀂄 Raising our estimates on strong domestic business and Taxotere generic
We also raise our India formulation YoY business growth forecasts from
18%/16%/16% to 22%/20%/18% for FY11/12/13, following strong execution and
growth in Q2 FY11—adjusted YoY sales growth of 27%. We therefore raise our
EPS estimates from Rs93.01/96.37/111.83 to Rs100.33/108.44/123.72 for
FY11/12/13.

􀂄 Valuation: maintain Neutral, raise PT from Rs2,250 to Rs2,550
We derive our price target from a DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool. We assume a WACC of
11%.