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US reaches a base, Taro expands reach
India growth is primarily volume-driven (15%) with price increase and new product contribution at less than 5%; domestic
growth expected to continue to grow above industry. Sun has launched latanoprost reformulated version and baclofen GRS
capsule in domestic market. DPI product expected to launch by next fiscal year. Current contribution of DPCO products is
at c12%.
US business has formed a base after Taro consolidation. Though Taro’s operating margin at 20% is impacting consolidated
numbers, the company expects to realign API sourcing and staff costs to improve overall margins at Taro. Taro has strong
sales and marketing strength in the US and gives access to Canadian market as well. It brings a strong pipeline in niche
therapies including dermaceuticals.
Product-specific opportunities in the US including docetaxel and oxaliplatin could be material but timelines are uncertain.
Sun Pharma is looking for more acquisitions in the US; Caraco will take time to recover from FDA woes. Increasing focus
on RoW markets as well, like Russia, Brazil, Mexico and S. Africa. Current sales force in these markets cumulatively is
c.600 people.
Dividend payout to continue at 20%. The company is hedging c50-70% net exports on a 6-month forward basis. Core ROE
expected to remain over 30%.
Valuation and risks
We value Sun Pharma at INR545 based on 24x Dec-12e EPS of INR22.3 and adding INR10 for para-IV value. We value
the base business at a 20% premium to the 5-year historical sector average of 22x, accounting for its higher growth than
peers in the domestic market and a relatively strong balance sheet (>USD600m net cash).
Key risks include negative development in the litigation over generic Protonix tablets and further risks due to ongoing
FDA issues at Caraco.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
US reaches a base, Taro expands reach
India growth is primarily volume-driven (15%) with price increase and new product contribution at less than 5%; domestic
growth expected to continue to grow above industry. Sun has launched latanoprost reformulated version and baclofen GRS
capsule in domestic market. DPI product expected to launch by next fiscal year. Current contribution of DPCO products is
at c12%.
US business has formed a base after Taro consolidation. Though Taro’s operating margin at 20% is impacting consolidated
numbers, the company expects to realign API sourcing and staff costs to improve overall margins at Taro. Taro has strong
sales and marketing strength in the US and gives access to Canadian market as well. It brings a strong pipeline in niche
therapies including dermaceuticals.
Product-specific opportunities in the US including docetaxel and oxaliplatin could be material but timelines are uncertain.
Sun Pharma is looking for more acquisitions in the US; Caraco will take time to recover from FDA woes. Increasing focus
on RoW markets as well, like Russia, Brazil, Mexico and S. Africa. Current sales force in these markets cumulatively is
c.600 people.
Dividend payout to continue at 20%. The company is hedging c50-70% net exports on a 6-month forward basis. Core ROE
expected to remain over 30%.
Valuation and risks
We value Sun Pharma at INR545 based on 24x Dec-12e EPS of INR22.3 and adding INR10 for para-IV value. We value
the base business at a 20% premium to the 5-year historical sector average of 22x, accounting for its higher growth than
peers in the domestic market and a relatively strong balance sheet (>USD600m net cash).
Key risks include negative development in the litigation over generic Protonix tablets and further risks due to ongoing
FDA issues at Caraco.
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