Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun Pharmaceuticals -Margin pressure here to stay …
Sun Pharma came out with disappointing numbers for Q3FY11. The
numbers are not comparable YoY and QoQ due to consolidation of Taro
Pharmaceuticals. Net sales zoomed 56.8% YoY to | 1601.1 crore
compared to our expectation of | 1495.1 crore. Excluding sales from
Taro, the topline was up just ~12% YoY. As EBITDA margins on the
Taro front were ~20%, much lower compared to Sun‘s base business
(~33%), overall EBITDA margins declined by 860 bps to 27.5%. Higher
taxation and depreciation further restricted growth in net profit to mere
3.3% at | 350.1 crore (compared to our expectation of | 442.7 crore). As
uncertainty remains for Caraco resolution and overall pressure on
margins will continue, we are maintaining our REDUCE rating.
ƒ Highlights of the quarter
Taro Pharmaceuticals reported sales of US$102 million (~| 459 crore
@45 per dollar), up 23% YoY while net profit was lower by 95% to
US$4.4 million (| 19.8 crore @ 45 per dollar). Caraco witnessed de-growth
of 22% to US$40.4 million (~ | 200 crore) on the back of a higher base as
it marketed ‘at-risk’ Protonix (anti-ulcerant) in Q3FY10. During the quarter,
Sun filed five ANDAs and withdrew three ANDAs with the USFDA taking
the total ANDA count to 369 (includes ANDAs of Caraco and Taro
Pharma). Of this, 220 ANDAs have been approved so far.
Valuation
Currently, Sun is trading at 24.7x FY12E EPS of | 17.7. Caraco resolution
and Taro financials will remain the main stumbling blocks, going ahead,
and will weigh on valuations as well. Together, these two companies now
account for ~41% of the total revenues but are dragging the margins. We
have arrived at a target price of | 416 on an SoTP basis. We have valued
the base business at 23x FY12E EPS of | 17.7 i.e. | 406, taking into
account the cash coffer and strong domestic franchise. We have valued
the first to file opportunity (Taxotere) at | 10 per share. We are
maintaining our REDUCE rating on the stock for the time being before
factoring in FY13E.
Result Update
ƒ Sales zoom on Taro consolidation
Sun Pharmaceutical’s net sales increased by 56.8% YoY to | 1601.1 crore
above our expectation of | 1495 crore, mainly driven by higher sales from
Taro Pharmaceuticals and the domestic formulation business. Sales from
Taro accounted for ~29% of total sales. Excluding the sales of Taro, the
base business grew by only ~12% YoY on the back of the inflated
Q3FY10 base.
Taro Pharmaceuticals reported sales of US$102 million (~| 459 crore
@45 per dollar), up 23% YoY while net profit was lower by 95% to US$
4.4 million (| 19.8 crore @ 45 per dollar). Higher tax provision during the
quarter had impacted the profits. However, the major concern emanating
from Taro’s front is the deviation between its CY08 audited numbers and
previously published unaudited ones. Audited net profit was at US$30.6
million, lower by almost 31% compared to unaudited profit of US$44.4
million. This was on the back of lower net sales of US$7.7 million and
higher expenses of US$6.2 million.
Sales from the domestic formulation business increased by 20% to | 640
crore as all its key therapies registered healthy growth. It launched nine
products during the quarter taking the total product launches in nine
months of the current fiscal to 30.
During the quarter, Sun maintained its leadership based on prescriptions
in therapies like cardiology, neurology, psychiatry, ophthalmology,
orthopaedics and gastroenterology.
Caraco Pharmaceuticals, the US based subsidiary, witnessed de-growth
of 22% to US$40.4 million (~| 200 crore) on the back of a higher base as
it marketed Protonix (anti-ulcerant) in Q3FY10. The management has
indicated that production at the Detroit facility will not start in Q4FY11.
Also, further delays can be expected for want of clearance from the
USFDA. The company is still in negotiations with FDA consultants.
Sun Pharma has also decided not to extend the distribution contract with
Caraco, which is going to expire in February 2012. To market its products
in the US market, it is planning to build a new field force and is also
looking to acquire a distribution company. Sun has also proposed to
acquire the remaining stake in Caraco and plans to de-list it.
During the quarter, Sun filed five ANDAs and withdrew three ANDAs with
the USFDA taking the total ANDA count to 369 (include ANDAs of Caraco
and Taro Pharma). Of this, 220 ANDAs have been approved so far. Due to
unresolved cGMP issues at Caraco, Sun has reduced target ANDA filings
for FY11 to 20-22 ANDAs from the earlier guidance of 30 ANDAs.
Total API sales declined 18% YoY to | 115.7 crore during the quarter. Till
date, it has filed 201 DMF/CEP applications and received approval for 127
across the globe. This includes 35 application from Taro of which 25 have
been approved so far.
Sun has received a favourable court verdict for generic Eloxatin, which it
had stopped to market in June after convincing a federal appeals court to
vacate and remand a settlement and injunction that a lower court had
approved despite Sun's opposition. However, the company is currently
evaluating the risk-return matrix of launching the product in the US
market. Caraco also received a favourable verdict for generic Prandin
(anti-diabetic).
Valuation
We expect Sun to grow above market growth in the domestic market,
which will be driven by new product launches, and chronic focus. Sun
Pharma’s sales and profits are expected to grow at a CAGR of 30% and
16% in FY10-12E, respectively. The lower growth rate in profits compared
to sales would be mainly due to a sharp fall in the overall EBITDA margin.
Consolidation of the low margin business of Taro Pharmaceuticals will hit
the overall margins.
The cGMP issue at its subsidiaries is a key concern for the company.
Taro’s Canada facility is still under the scanner as the USFDA has issued a
warning letter to this facility. There is no clear visibility on the starting of
manufacturing activities at Caraco’s Detroit facility either. The company
plans to set up its own field force, which will further put pressure on the
margins. Also, there will be uncertainties associated with Taro’s audited
numbers due to the kind of discrepancies observed between the two
accounts. Thus, the visibility on both these fronts is not clear. Hence, we
are holding back our FY13 estimates and valuing the stock on FY12
numbers only.
Currently, Sun is trading at 24.7x FY12E EPS of | 17.7. Caraco resolution
and Taro’s financials will remain the main stumbling blocks, going ahead,
and will weigh on the valuation as well. Together, these two companies
now account for ~41% of the total revenues but are dragging the
margins. We have arrived at a target price of | 416 on an SoTP basis. We
have valued the base business at 23x FY12E EPS of | 17.7 i.e. | 406 taking
into account the cash coffer and strong domestic franchise and first to file
opportunities at | 10 per share. We maintain our REDUCE rating on the
stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun Pharmaceuticals -Margin pressure here to stay …
Sun Pharma came out with disappointing numbers for Q3FY11. The
numbers are not comparable YoY and QoQ due to consolidation of Taro
Pharmaceuticals. Net sales zoomed 56.8% YoY to | 1601.1 crore
compared to our expectation of | 1495.1 crore. Excluding sales from
Taro, the topline was up just ~12% YoY. As EBITDA margins on the
Taro front were ~20%, much lower compared to Sun‘s base business
(~33%), overall EBITDA margins declined by 860 bps to 27.5%. Higher
taxation and depreciation further restricted growth in net profit to mere
3.3% at | 350.1 crore (compared to our expectation of | 442.7 crore). As
uncertainty remains for Caraco resolution and overall pressure on
margins will continue, we are maintaining our REDUCE rating.
ƒ Highlights of the quarter
Taro Pharmaceuticals reported sales of US$102 million (~| 459 crore
@45 per dollar), up 23% YoY while net profit was lower by 95% to
US$4.4 million (| 19.8 crore @ 45 per dollar). Caraco witnessed de-growth
of 22% to US$40.4 million (~ | 200 crore) on the back of a higher base as
it marketed ‘at-risk’ Protonix (anti-ulcerant) in Q3FY10. During the quarter,
Sun filed five ANDAs and withdrew three ANDAs with the USFDA taking
the total ANDA count to 369 (includes ANDAs of Caraco and Taro
Pharma). Of this, 220 ANDAs have been approved so far.
Valuation
Currently, Sun is trading at 24.7x FY12E EPS of | 17.7. Caraco resolution
and Taro financials will remain the main stumbling blocks, going ahead,
and will weigh on valuations as well. Together, these two companies now
account for ~41% of the total revenues but are dragging the margins. We
have arrived at a target price of | 416 on an SoTP basis. We have valued
the base business at 23x FY12E EPS of | 17.7 i.e. | 406, taking into
account the cash coffer and strong domestic franchise. We have valued
the first to file opportunity (Taxotere) at | 10 per share. We are
maintaining our REDUCE rating on the stock for the time being before
factoring in FY13E.
Result Update
ƒ Sales zoom on Taro consolidation
Sun Pharmaceutical’s net sales increased by 56.8% YoY to | 1601.1 crore
above our expectation of | 1495 crore, mainly driven by higher sales from
Taro Pharmaceuticals and the domestic formulation business. Sales from
Taro accounted for ~29% of total sales. Excluding the sales of Taro, the
base business grew by only ~12% YoY on the back of the inflated
Q3FY10 base.
Taro Pharmaceuticals reported sales of US$102 million (~| 459 crore
@45 per dollar), up 23% YoY while net profit was lower by 95% to US$
4.4 million (| 19.8 crore @ 45 per dollar). Higher tax provision during the
quarter had impacted the profits. However, the major concern emanating
from Taro’s front is the deviation between its CY08 audited numbers and
previously published unaudited ones. Audited net profit was at US$30.6
million, lower by almost 31% compared to unaudited profit of US$44.4
million. This was on the back of lower net sales of US$7.7 million and
higher expenses of US$6.2 million.
Sales from the domestic formulation business increased by 20% to | 640
crore as all its key therapies registered healthy growth. It launched nine
products during the quarter taking the total product launches in nine
months of the current fiscal to 30.
During the quarter, Sun maintained its leadership based on prescriptions
in therapies like cardiology, neurology, psychiatry, ophthalmology,
orthopaedics and gastroenterology.
Caraco Pharmaceuticals, the US based subsidiary, witnessed de-growth
of 22% to US$40.4 million (~| 200 crore) on the back of a higher base as
it marketed Protonix (anti-ulcerant) in Q3FY10. The management has
indicated that production at the Detroit facility will not start in Q4FY11.
Also, further delays can be expected for want of clearance from the
USFDA. The company is still in negotiations with FDA consultants.
Sun Pharma has also decided not to extend the distribution contract with
Caraco, which is going to expire in February 2012. To market its products
in the US market, it is planning to build a new field force and is also
looking to acquire a distribution company. Sun has also proposed to
acquire the remaining stake in Caraco and plans to de-list it.
During the quarter, Sun filed five ANDAs and withdrew three ANDAs with
the USFDA taking the total ANDA count to 369 (include ANDAs of Caraco
and Taro Pharma). Of this, 220 ANDAs have been approved so far. Due to
unresolved cGMP issues at Caraco, Sun has reduced target ANDA filings
for FY11 to 20-22 ANDAs from the earlier guidance of 30 ANDAs.
Total API sales declined 18% YoY to | 115.7 crore during the quarter. Till
date, it has filed 201 DMF/CEP applications and received approval for 127
across the globe. This includes 35 application from Taro of which 25 have
been approved so far.
Sun has received a favourable court verdict for generic Eloxatin, which it
had stopped to market in June after convincing a federal appeals court to
vacate and remand a settlement and injunction that a lower court had
approved despite Sun's opposition. However, the company is currently
evaluating the risk-return matrix of launching the product in the US
market. Caraco also received a favourable verdict for generic Prandin
(anti-diabetic).
Valuation
We expect Sun to grow above market growth in the domestic market,
which will be driven by new product launches, and chronic focus. Sun
Pharma’s sales and profits are expected to grow at a CAGR of 30% and
16% in FY10-12E, respectively. The lower growth rate in profits compared
to sales would be mainly due to a sharp fall in the overall EBITDA margin.
Consolidation of the low margin business of Taro Pharmaceuticals will hit
the overall margins.
The cGMP issue at its subsidiaries is a key concern for the company.
Taro’s Canada facility is still under the scanner as the USFDA has issued a
warning letter to this facility. There is no clear visibility on the starting of
manufacturing activities at Caraco’s Detroit facility either. The company
plans to set up its own field force, which will further put pressure on the
margins. Also, there will be uncertainties associated with Taro’s audited
numbers due to the kind of discrepancies observed between the two
accounts. Thus, the visibility on both these fronts is not clear. Hence, we
are holding back our FY13 estimates and valuing the stock on FY12
numbers only.
Currently, Sun is trading at 24.7x FY12E EPS of | 17.7. Caraco resolution
and Taro’s financials will remain the main stumbling blocks, going ahead,
and will weigh on the valuation as well. Together, these two companies
now account for ~41% of the total revenues but are dragging the
margins. We have arrived at a target price of | 416 on an SoTP basis. We
have valued the base business at 23x FY12E EPS of | 17.7 i.e. | 406 taking
into account the cash coffer and strong domestic franchise and first to file
opportunities at | 10 per share. We maintain our REDUCE rating on the
stock.
No comments:
Post a Comment