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Sun Pharmaceutical
3Q - US business, margins disappoint
Sun's 3Q interims (excluding the Taro contribution) disappointed us primarily
due to weak Caraco revenues (-22% yoy) and weaker EBITDA margin. In the
absence of one-offs, overheads at Caraco and Taro's consolidation, EBITDA
margin has declined by c860bp yoy to 27.5%. Maintain Sell on rich valuations.
Caraco's performance: key reason for revenue disappointment
! Sun Pharma reported 3QFY11 revenues of Rs16.0bn (+57% yoy) vs. our estimate of
Rs18.2bn. The key reason for the revenue disappointment was lower than expected Caraco
(Sun Pharma's US subsidiary) revenues which came in at US$40m (-22% yoy) as against our
expectation of US$88m.
! Excluding Taro's contribution (US$102m) and our estimate of one-off sales of gExelon
(US$9m), we believe adjusted revenues were Rs10.9bn (+7% yoy).
! Taro reported revenues of US$102m (+23% yoy, flat qoq) which were in line with our
estimate. We highlight that the complete impact of Taro's consolidation was visible for the first
time during this quarter.
! Domestic formulation business revenues at Rs6.4bn (+20% yoy) were in line with our
expectations. Bulk business - both domestic (revenues of Rs274m, -5% yoy) and export
(Rs887m, -22% yoy) was weak.
! We highlight that Sun Pharma had built up a provision of cUS$15m in 1HFY11 for potential
sales return in the books of Caraco. We believe that the company has now reversed that
provision which leads us to believe that the remaining export formulation business (ex-Caraco
and Taro) reported revenues of Rs1.5bn (+19% yoy).
EBITDA margin disappoints due to absence of one-offs and Taro consolidation
! Sun Pharma reported EBITDA margin of 27.5% as against our estimate of 33.5%. We
highlight that EBITDA margin in the past has been boosted by contribution from one-offs -
FY10 EBITDA margin was 31.8% while it was 39.1% in 1HFY11.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun Pharmaceutical
3Q - US business, margins disappoint
Sun's 3Q interims (excluding the Taro contribution) disappointed us primarily
due to weak Caraco revenues (-22% yoy) and weaker EBITDA margin. In the
absence of one-offs, overheads at Caraco and Taro's consolidation, EBITDA
margin has declined by c860bp yoy to 27.5%. Maintain Sell on rich valuations.
Caraco's performance: key reason for revenue disappointment
! Sun Pharma reported 3QFY11 revenues of Rs16.0bn (+57% yoy) vs. our estimate of
Rs18.2bn. The key reason for the revenue disappointment was lower than expected Caraco
(Sun Pharma's US subsidiary) revenues which came in at US$40m (-22% yoy) as against our
expectation of US$88m.
! Excluding Taro's contribution (US$102m) and our estimate of one-off sales of gExelon
(US$9m), we believe adjusted revenues were Rs10.9bn (+7% yoy).
! Taro reported revenues of US$102m (+23% yoy, flat qoq) which were in line with our
estimate. We highlight that the complete impact of Taro's consolidation was visible for the first
time during this quarter.
! Domestic formulation business revenues at Rs6.4bn (+20% yoy) were in line with our
expectations. Bulk business - both domestic (revenues of Rs274m, -5% yoy) and export
(Rs887m, -22% yoy) was weak.
! We highlight that Sun Pharma had built up a provision of cUS$15m in 1HFY11 for potential
sales return in the books of Caraco. We believe that the company has now reversed that
provision which leads us to believe that the remaining export formulation business (ex-Caraco
and Taro) reported revenues of Rs1.5bn (+19% yoy).
EBITDA margin disappoints due to absence of one-offs and Taro consolidation
! Sun Pharma reported EBITDA margin of 27.5% as against our estimate of 33.5%. We
highlight that EBITDA margin in the past has been boosted by contribution from one-offs -
FY10 EBITDA margin was 31.8% while it was 39.1% in 1HFY11.
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