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Sun Pharma – 3QFY2011 Result Update
Angel Broking maintains a Neutral on Sun Pharma.
For 3QFY2011, Sun Pharma reported net sales growth of 56.8% yoy to `1,601cr
(`1,021cr), higher than our estimates of `1,513cr. However, the reporting was
lower than expected on the operating front due to higher fixed expenses. Also,
the net profit was hit by higher depreciation cost and tax outgo during the
quarter. The company has revised its revenue guidance to 42% (35%) for
FY2011E. The stock is currently trading at 27.1x and 20.1x its FY2011E and
FY2012E EPS, respectively. We remain Neutral on the stock.
Strong top-line growth, but dented bottom line: Sun Pharma reported net sales of
`1,601cr (`1,021cr), up 56.8% yoy, during the quarter. Growth was mainly
driven by the inclusion of Taro’s financials as well as strong growth of 99.6% in
overall exports to `955cr (`478cr). However, the company’s OPM declined to
27.5% (36.1%), which was mainly affected by higher employee and other
expenses, up 137% to `275cr (`116cr) and 79% to `363cr (`203cr), respectively,
on account of inclusion of Taro’s financials. Net profit reported single-digit
growth of 3.3% to `350.2cr (`339cr), hit by higher depreciation cost at `80.5cr
(`36cr), up by 124%, and the 109% increase in tax outgo.
Outlook and valuation: This is the first quarter wherein Taro’s financials for the
full quarter have been consolidated with Sun Pharma’s financials. In accordance,
we have revised our estimates upwards. We expect Sun Pharma’s net sales to
post a 36% CAGR to `7,591cr and EPS to register a 29.7% CAGR over
FY2010–12E. We remain Neutral on the stock.
Concall takeaways
Post the inclusion of Taro’s financials to the consolidated reporting,
management has revised its revenue guidance to 42% for FY2011E as
against 35% earlier.
Regarding the FDA issues with Caraco, management indicated that
manufacturing from the Caraco facility would not start from FY2011 as
the resolution would take more time than expected.
With respect to ANDA filings for the US markets, the company has revised
the target downwards to 20–22 in FY2011 from 30 earlier.
Although the US court’s verdict has been in favour of Sun Pharma for the
launch of Eloxatin in the US markets, management indicated that it is in
the process of risk evaluation, post which it would take a decision
regarding the launch.
Recommendation rationale
Strongest ANDA pipeline: Sun Pharma’s US business posted a 33% CAGR over
FY2005–10, which contributed 30% to its total turnover in FY2010.
Sun Pharma, along with Caraco and Taro, now has 149 ANDAs pending US
FDA approval, which is one of the highest in the Indian pharma space.
Sun Pharma has filed around 30 ANDAs in each of the past few years.
The company indicated that it would file 20–22 ANDAs in FY2011 as well.
Some of the key products for Sun Pharma with limited competition include
generic versions of Stalevo, Gabitril, Exelon, Strattera and Gleevec. On the
Caraco front, management indicated that the resolution of the US FDA issue
would not happen in FY2011 due to longer time taken than expected.
The company’s remediation work plan to the US FDA on Caraco has also
been approved.
Domestic business: Sun Pharma’s domestic formulation business has posted a
24% CAGR over FY2005–10, which is above the industry’s average.
The business contributed 45% to the company’s total turnover in FY2010.
Sun Pharma has strength of 2,600MRs and one of the highest field force
productivity of around of `70lakh/MR per year, which has resulted in high
margins from the segment. The company has a market share of around 3.7%,
with exposure to psychiatry, neurology, CVS, diabetic and gastroenterology.
In FY2010, Sun Pharma launched 49 products in the domestic market.
Healthy balance sheet: Sun Pharma has one of the strongest balance sheets in
the sector, with cash of around `3,800cr (~8% of Mcap). Management has
indicated that it is looking at inorganic growth and scouting for acquisitions,
especially in the US.
Outlook and valuation: Sun Pharma is one of the largest and fastest growing
Indian pharmaceutical companies. Management has guided 42% top-line
growth for FY2011, with OPM in the historic range post the inclusion of Taro’s
financials at the consolidated level. Further, management expects R&D
expenses to account for 7–8% of net sales and capex to be at `500cr for
FY2011.
This is the first quarter wherein Taro’s financials for the entire quarter have
been consolidated with Sun Pharma’s financials. Accounting for Taro’s
contribution to Sun Pharma’s growth, we have revised our estimates upwards.
We expect Sun Pharma’s net sales to post a 36.0% CAGR to `7,591cr and EPS
to register a 29.7% CAGR over FY2010–12E. The stock is currently trading
27.1x and 20.1x its FY2011E and FY2012E earnings, respectively. We remain
Neutral on the stock.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun Pharma – 3QFY2011 Result Update
For 3QFY2011, Sun Pharma reported net sales growth of 56.8% yoy to `1,601cr
(`1,021cr), higher than our estimates of `1,513cr. However, the reporting was
lower than expected on the operating front due to higher fixed expenses. Also,
the net profit was hit by higher depreciation cost and tax outgo during the
quarter. The company has revised its revenue guidance to 42% (35%) for
FY2011E. The stock is currently trading at 27.1x and 20.1x its FY2011E and
FY2012E EPS, respectively. We remain Neutral on the stock.
Strong top-line growth, but dented bottom line: Sun Pharma reported net sales of
`1,601cr (`1,021cr), up 56.8% yoy, during the quarter. Growth was mainly
driven by the inclusion of Taro’s financials as well as strong growth of 99.6% in
overall exports to `955cr (`478cr). However, the company’s OPM declined to
27.5% (36.1%), which was mainly affected by higher employee and other
expenses, up 137% to `275cr (`116cr) and 79% to `363cr (`203cr), respectively,
on account of inclusion of Taro’s financials. Net profit reported single-digit
growth of 3.3% to `350.2cr (`339cr), hit by higher depreciation cost at `80.5cr
(`36cr), up by 124%, and the 109% increase in tax outgo.
Outlook and valuation: This is the first quarter wherein Taro’s financials for the
full quarter have been consolidated with Sun Pharma’s financials. In accordance,
we have revised our estimates upwards. We expect Sun Pharma’s net sales to
post a 36% CAGR to `7,591cr and EPS to register a 29.7% CAGR over
FY2010–12E. We remain Neutral on the stock.
Concall takeaways
Post the inclusion of Taro’s financials to the consolidated reporting,
management has revised its revenue guidance to 42% for FY2011E as
against 35% earlier.
Regarding the FDA issues with Caraco, management indicated that
manufacturing from the Caraco facility would not start from FY2011 as
the resolution would take more time than expected.
With respect to ANDA filings for the US markets, the company has revised
the target downwards to 20–22 in FY2011 from 30 earlier.
Although the US court’s verdict has been in favour of Sun Pharma for the
launch of Eloxatin in the US markets, management indicated that it is in
the process of risk evaluation, post which it would take a decision
regarding the launch.
Recommendation rationale
Strongest ANDA pipeline: Sun Pharma’s US business posted a 33% CAGR over
FY2005–10, which contributed 30% to its total turnover in FY2010.
Sun Pharma, along with Caraco and Taro, now has 149 ANDAs pending US
FDA approval, which is one of the highest in the Indian pharma space.
Sun Pharma has filed around 30 ANDAs in each of the past few years.
The company indicated that it would file 20–22 ANDAs in FY2011 as well.
Some of the key products for Sun Pharma with limited competition include
generic versions of Stalevo, Gabitril, Exelon, Strattera and Gleevec. On the
Caraco front, management indicated that the resolution of the US FDA issue
would not happen in FY2011 due to longer time taken than expected.
The company’s remediation work plan to the US FDA on Caraco has also
been approved.
Domestic business: Sun Pharma’s domestic formulation business has posted a
24% CAGR over FY2005–10, which is above the industry’s average.
The business contributed 45% to the company’s total turnover in FY2010.
Sun Pharma has strength of 2,600MRs and one of the highest field force
productivity of around of `70lakh/MR per year, which has resulted in high
margins from the segment. The company has a market share of around 3.7%,
with exposure to psychiatry, neurology, CVS, diabetic and gastroenterology.
In FY2010, Sun Pharma launched 49 products in the domestic market.
Healthy balance sheet: Sun Pharma has one of the strongest balance sheets in
the sector, with cash of around `3,800cr (~8% of Mcap). Management has
indicated that it is looking at inorganic growth and scouting for acquisitions,
especially in the US.
Outlook and valuation: Sun Pharma is one of the largest and fastest growing
Indian pharmaceutical companies. Management has guided 42% top-line
growth for FY2011, with OPM in the historic range post the inclusion of Taro’s
financials at the consolidated level. Further, management expects R&D
expenses to account for 7–8% of net sales and capex to be at `500cr for
FY2011.
This is the first quarter wherein Taro’s financials for the entire quarter have
been consolidated with Sun Pharma’s financials. Accounting for Taro’s
contribution to Sun Pharma’s growth, we have revised our estimates upwards.
We expect Sun Pharma’s net sales to post a 36.0% CAGR to `7,591cr and EPS
to register a 29.7% CAGR over FY2010–12E. The stock is currently trading
27.1x and 20.1x its FY2011E and FY2012E earnings, respectively. We remain
Neutral on the stock.
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