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Sun Pharmaceuticals
3Q Earnings Conf Call Takeaway
Event
Sun reported 3Q FY11 net sales of Rs16bn, in line with estimates. PAT came
in at Rs3.5bn (up only 3% YoY) on account of higher tax paid and a onetime
impairment charge (of US$4.5m) at Taro. Sun held an earnings call and
raised full year sales growth guidance to 42% (vs 35% YoY).
Impact
Domestic business: Domestic formulations contributed 40% to the top line
and grew at a healthy 20% YoY (flat QoQ) to Rs6.4bn. For 9M FY11 domestic
formulation sales were Rs18.8bn, up 43% YoY. This high growth is partially
due to lower sales in 1Q FY10 on account of higher one-time sales (Rs2bn)
booked in 4Q09. However, even after adjusting for the lower base, 9M FY11
would still see an impressive 24% YoY growth. Sun launched 30 products
in 9M FY11, and its market share in India currently stands at 3.7% (IMS ORG
report).
Taro: Sun currently holds a 66% economic stake in the company post
acquisition of Templeton’s stake for US$82m. Taro PAT was low at US$4.4m
on the back of higher income tax (US$13.5m). While the current quarter tax
rate was very high, Sun indicated full year rate (~25%) as a better indicator for
future. Going forward, Taro expects a gradual margin expansion.
Caraco: Caraco reported US$40m sales in 3Q FY11 of which Caraco-owned
product contributed US$5.7m. It’s unlikely that manufacturing can begin at
Caraco facility anytime soon, and meanwhile manufacturing site transfer to
Sun Pharma has helped regain some revenues. Sun plans to buy the
remaining 24% minority stake, and is awaiting Caraco’s reply, on the same.
US key product opportunities: 1) Docetaxel: Sun is awaiting FDA approval
but did not provide time-line (our estimate 1QFY12 launch); 2) Prandin: Post a
favourable ruling by a US court Caraco is awaiting FDA approval (we believe
SUN has applied for a site switch and should monetize the FTF in FY12;
3) Eloxatin: Despite a win at the appeals court, SUN has still not decided to
launch.
Revised guidance: Sales growth of 42% YoY in FY11 (vs 35% YoY earlier),
primarily on account of Taro consolidation. We believe this is conservative.
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs437.00 based on a Sum of Parts methodology.
Catalyst: 1) Docetaxel and Prandin approval & launch.
Action and recommendation
Sun’s long-term fundamentals remain intact, and we believe a strong balance
sheet provides room for strategic alternatives. However, the current price
leaves little valuation buffer. Sun is trading at 22x FY12E earnings and, we
believe it is prudent to add on weakness. Maintain Neutral rating with TP of
Rs437.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun Pharmaceuticals
3Q Earnings Conf Call Takeaway
Event
Sun reported 3Q FY11 net sales of Rs16bn, in line with estimates. PAT came
in at Rs3.5bn (up only 3% YoY) on account of higher tax paid and a onetime
impairment charge (of US$4.5m) at Taro. Sun held an earnings call and
raised full year sales growth guidance to 42% (vs 35% YoY).
Impact
Domestic business: Domestic formulations contributed 40% to the top line
and grew at a healthy 20% YoY (flat QoQ) to Rs6.4bn. For 9M FY11 domestic
formulation sales were Rs18.8bn, up 43% YoY. This high growth is partially
due to lower sales in 1Q FY10 on account of higher one-time sales (Rs2bn)
booked in 4Q09. However, even after adjusting for the lower base, 9M FY11
would still see an impressive 24% YoY growth. Sun launched 30 products
in 9M FY11, and its market share in India currently stands at 3.7% (IMS ORG
report).
Taro: Sun currently holds a 66% economic stake in the company post
acquisition of Templeton’s stake for US$82m. Taro PAT was low at US$4.4m
on the back of higher income tax (US$13.5m). While the current quarter tax
rate was very high, Sun indicated full year rate (~25%) as a better indicator for
future. Going forward, Taro expects a gradual margin expansion.
Caraco: Caraco reported US$40m sales in 3Q FY11 of which Caraco-owned
product contributed US$5.7m. It’s unlikely that manufacturing can begin at
Caraco facility anytime soon, and meanwhile manufacturing site transfer to
Sun Pharma has helped regain some revenues. Sun plans to buy the
remaining 24% minority stake, and is awaiting Caraco’s reply, on the same.
US key product opportunities: 1) Docetaxel: Sun is awaiting FDA approval
but did not provide time-line (our estimate 1QFY12 launch); 2) Prandin: Post a
favourable ruling by a US court Caraco is awaiting FDA approval (we believe
SUN has applied for a site switch and should monetize the FTF in FY12;
3) Eloxatin: Despite a win at the appeals court, SUN has still not decided to
launch.
Revised guidance: Sales growth of 42% YoY in FY11 (vs 35% YoY earlier),
primarily on account of Taro consolidation. We believe this is conservative.
Earnings and target price revision
No change.
Price catalyst
12-month price target: Rs437.00 based on a Sum of Parts methodology.
Catalyst: 1) Docetaxel and Prandin approval & launch.
Action and recommendation
Sun’s long-term fundamentals remain intact, and we believe a strong balance
sheet provides room for strategic alternatives. However, the current price
leaves little valuation buffer. Sun is trading at 22x FY12E earnings and, we
believe it is prudent to add on weakness. Maintain Neutral rating with TP of
Rs437.
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