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Sun (SUN.BO): Retain Sell as cash returns continue to decline
Source of opportunity
We retain our Sell rating on Sun as we believe that the current
valuation is rich and outweighs its growth prospects. We revise our
12-month target price to Rs308 (from Rs307) as we raise our EPS
estimates by 3%-10% for FY11E-FY13E.
We see limited publicly known product opportunities for Sun in
2011-2012 with launches restricted mainly to focus areas of
oncology and CNS. Our ANDA pipeline analysis yields a revenue
potential of US$288mn for Sun over 2011-2014 from major
product launches. We forecast sales and earnings CAGR of 19% and
13%, respectively, over FY2011E-FY2013E.
Eloxatin (Oxaliplatin) at-risk launch unlikely: Sun has not
resumed Eloxatin sales in US till date despite the lifting of the court
injunction on Dec 22, 2010. We believe that Sun may not go ahead
with an at-risk re-launch given the overhang of the Protonix case.
However, a potential launch may pose upside risks to our estimates.
Taro integration challenges remain: While the end of the lengthy
acquisition process was a positive for Sun, the focus has now shifted to
its integration and potential synergies with Sun. We regard Taro as a
potential risk due to the lack of disclosure on its financials. While Taro’s
ANDA pipeline has around 28 pending ANDAs, we see limited
opportunities for exclusive launches or FTF products.
Caraco – complete resolution still not in sight: We believe that
progress on Caraco, post the regulatory clampdown by the FDA, is a
key driver for Sun. While developments in 2010 were positive, we
expect a lengthy remediation process, with timelines for resumption
of normal manufacturing at Caraco being uncertain and stretching
well into FY2012E.
Catalyts
Lower US revenues as the Protonix-dependent US revenues
declines: While Sun has benefited significantly from the exclusive
launches of Protonix and Eloxatin and outperformed in 2010, we believe
that a repeat in 2011 is unlikely due to emerging competition and limited
new launches. As per our estimate, Protonix contributed 40% of Sun’s
US sales in 2010. With Protonix losing patent protection in Jan 2011 and
multiple competitors lined up for launch, we expect Sun’s pricing and
market share to be under pressure.
Valuation
Our new Director’s Cut-based 12-month TP of Rs308 yields 26% potential
downside from current levels. We maintain our Sell rating. The stock is
currently trading at 21.9X on FY12E P/E and 18.3X on FY12E EV/EBITDA,
representing premiums of 40% and 62% to its peers, respectively.
Key risks
Eloxatin re-launch, resolution of the FDA issue allowing Caraco’s US
sales to get back on track, favorable verdicts in ongoing litigations.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell list
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun (SUN.BO): Retain Sell as cash returns continue to decline
Source of opportunity
We retain our Sell rating on Sun as we believe that the current
valuation is rich and outweighs its growth prospects. We revise our
12-month target price to Rs308 (from Rs307) as we raise our EPS
estimates by 3%-10% for FY11E-FY13E.
We see limited publicly known product opportunities for Sun in
2011-2012 with launches restricted mainly to focus areas of
oncology and CNS. Our ANDA pipeline analysis yields a revenue
potential of US$288mn for Sun over 2011-2014 from major
product launches. We forecast sales and earnings CAGR of 19% and
13%, respectively, over FY2011E-FY2013E.
Eloxatin (Oxaliplatin) at-risk launch unlikely: Sun has not
resumed Eloxatin sales in US till date despite the lifting of the court
injunction on Dec 22, 2010. We believe that Sun may not go ahead
with an at-risk re-launch given the overhang of the Protonix case.
However, a potential launch may pose upside risks to our estimates.
Taro integration challenges remain: While the end of the lengthy
acquisition process was a positive for Sun, the focus has now shifted to
its integration and potential synergies with Sun. We regard Taro as a
potential risk due to the lack of disclosure on its financials. While Taro’s
ANDA pipeline has around 28 pending ANDAs, we see limited
opportunities for exclusive launches or FTF products.
Caraco – complete resolution still not in sight: We believe that
progress on Caraco, post the regulatory clampdown by the FDA, is a
key driver for Sun. While developments in 2010 were positive, we
expect a lengthy remediation process, with timelines for resumption
of normal manufacturing at Caraco being uncertain and stretching
well into FY2012E.
Catalyts
Lower US revenues as the Protonix-dependent US revenues
declines: While Sun has benefited significantly from the exclusive
launches of Protonix and Eloxatin and outperformed in 2010, we believe
that a repeat in 2011 is unlikely due to emerging competition and limited
new launches. As per our estimate, Protonix contributed 40% of Sun’s
US sales in 2010. With Protonix losing patent protection in Jan 2011 and
multiple competitors lined up for launch, we expect Sun’s pricing and
market share to be under pressure.
Valuation
Our new Director’s Cut-based 12-month TP of Rs308 yields 26% potential
downside from current levels. We maintain our Sell rating. The stock is
currently trading at 21.9X on FY12E P/E and 18.3X on FY12E EV/EBITDA,
representing premiums of 40% and 62% to its peers, respectively.
Key risks
Eloxatin re-launch, resolution of the FDA issue allowing Caraco’s US
sales to get back on track, favorable verdicts in ongoing litigations.
INVESTMENT LIST MEMBERSHIP
Asia Pacific Sell list
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