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Sun Pharmaceuticals (SUNP)
Pharmaceuticals
One-offs affect 3Q, growth intact with several triggers. PAT at Rs2.2 bn was 16%
lower than our est. due to (1) lower EBITDA margin with one-offs in staff costs, other
expenses, and (2) one-offs in depreciation, tax on account of Taro. Adjusting for the
one-offs, we believe EBITDA margin is at 33%, 300 bps higher than our est. FY2011E
sales guidance of 42% implies some of these adjustments may reoccur in 4QFY11E. We
leave our FY2011-12E est. largely intact and include mid-FY2012E Taxotere launch.
Several triggers exist which are likely to result in meaningful upside to our FY2012E EPS.
We move rating a notch lower to ADD (from BUY) with PT intact at Rs480.
3QFY11 sales at Rs16 bn, in line with our est.
Sales were largely in line with our est. at Rs16 bn, with (1) India up 20% yoy vs our est. of 18%, (2)
Taro sales at US$102 mn vs our est. of US$98 mn, (3) Caraco sales at US$40 mn vs US$42 mn and
(4) ROW sales at Rs1.1 bn was 25% lower than our est. due to inventory destocking this quarter in
some markets, hence it reported a 6% sales decline in dollar terms post a strong 1HFY11 where it
reported 15% growth in dollar terms. However, underlying prescription growth remains healthy at
20%, according to SUN.
PAT at Rs3.5 bn, 16% lower than our est. of Rs4.1 bn, affected by one-offs
EBITDA was 6% lower due to EBITDA margin at 27.5%, 240 bps lower than our est. of 30%
primarily due to certain one-offs on account of (1) higher staff cost. Taro staff cost was higher on
account of severance package and (2) other expenses which included adjustments for Protonix
write-offs. Gross margin was maintained qoq at 73%, 300 bps higher than our estimate despite
the absence of high-margin exclusive product this quarter. We estimate EBITDA margin excluding
above one-offs adjustment at 33%, 300 bps higher than our estimate. While EBITDA was 6%
lower than our estimate, PAT was 16% lower due to (1) lower other income, (2) higher
depreciation due to US$4 mn impairment charge at Taro and (3) higher tax rate at 13% vs our
estimate of 9% due to higher tax rate at Taro this quarter.
We leave our FY2011-12E estimates largely intact, include Taxotere in FY2012E
We leave our estimates unchanged and include (1) US$16 mn of Gemzar sales in FY2012E, we
believe SUN will get final approval by August 2011E, 6 months post Teva’s launch and (2) mid-
FY2012E launch of Taxotere with sales of US$70 mn. We estimate sales growth at 43% for
FY2011E, in line with management guidance which could imply a weak 4QFY11E on account of
some of the stock adjustments continuing in 4QFY11E.
Move to ADD (from BUY) with PT intact at Rs480
We value Sun at (1) 23X FY2012E core EPS ex-interest income, (2) cash/share of Rs40, and (3) DCF
value of Para IV challenges. Several triggers exist and likely to result in meaningful upside to
FY2012E EPS
Several triggers exist which could result in meaningful upside to FY2012E EPS
Stock triggers are
(1) Early launch of generic Taxotere by Hospira which is likely to allow SUNP to
come in later ahead of Apotex/Sandoz. We include sales of Taxotere with sales of
US$70 (25% market share, 45% price erosion) assuming a mid-year launch in
FY2012E. This, we believe, will be a meaningful revenue driver going forward due
to limited competition.
(2) Positive ruling by Appeals court regarding Strattera in favor of generic
companies. SUN has received final approval and will enjoy 180-day shared
exclusivity along with 5-7 other companies.
(3) Favorable verdict on generic Eloxatin court hearing. We believe SUN will await
court resolution and may not launch Eloxatin at risk, because despite getting final
approval in Aug 2009 to launch along with Teva/Hospira, SUN chose to wait till
March 2010 till the court enforced the legality of its agreement with Sanofi.
Though SUN has always mentioned that its case is strong, it clearly chose to stay
out of market from Aug 2009 to March 2010. However, SUN may launch post
settlement with Sanofi ahead of competition in August 2012E.
(4) Final approval for Prandin post site switch from Caraco (sole-exclusivity).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun Pharmaceuticals (SUNP)
Pharmaceuticals
One-offs affect 3Q, growth intact with several triggers. PAT at Rs2.2 bn was 16%
lower than our est. due to (1) lower EBITDA margin with one-offs in staff costs, other
expenses, and (2) one-offs in depreciation, tax on account of Taro. Adjusting for the
one-offs, we believe EBITDA margin is at 33%, 300 bps higher than our est. FY2011E
sales guidance of 42% implies some of these adjustments may reoccur in 4QFY11E. We
leave our FY2011-12E est. largely intact and include mid-FY2012E Taxotere launch.
Several triggers exist which are likely to result in meaningful upside to our FY2012E EPS.
We move rating a notch lower to ADD (from BUY) with PT intact at Rs480.
3QFY11 sales at Rs16 bn, in line with our est.
Sales were largely in line with our est. at Rs16 bn, with (1) India up 20% yoy vs our est. of 18%, (2)
Taro sales at US$102 mn vs our est. of US$98 mn, (3) Caraco sales at US$40 mn vs US$42 mn and
(4) ROW sales at Rs1.1 bn was 25% lower than our est. due to inventory destocking this quarter in
some markets, hence it reported a 6% sales decline in dollar terms post a strong 1HFY11 where it
reported 15% growth in dollar terms. However, underlying prescription growth remains healthy at
20%, according to SUN.
PAT at Rs3.5 bn, 16% lower than our est. of Rs4.1 bn, affected by one-offs
EBITDA was 6% lower due to EBITDA margin at 27.5%, 240 bps lower than our est. of 30%
primarily due to certain one-offs on account of (1) higher staff cost. Taro staff cost was higher on
account of severance package and (2) other expenses which included adjustments for Protonix
write-offs. Gross margin was maintained qoq at 73%, 300 bps higher than our estimate despite
the absence of high-margin exclusive product this quarter. We estimate EBITDA margin excluding
above one-offs adjustment at 33%, 300 bps higher than our estimate. While EBITDA was 6%
lower than our estimate, PAT was 16% lower due to (1) lower other income, (2) higher
depreciation due to US$4 mn impairment charge at Taro and (3) higher tax rate at 13% vs our
estimate of 9% due to higher tax rate at Taro this quarter.
We leave our FY2011-12E estimates largely intact, include Taxotere in FY2012E
We leave our estimates unchanged and include (1) US$16 mn of Gemzar sales in FY2012E, we
believe SUN will get final approval by August 2011E, 6 months post Teva’s launch and (2) mid-
FY2012E launch of Taxotere with sales of US$70 mn. We estimate sales growth at 43% for
FY2011E, in line with management guidance which could imply a weak 4QFY11E on account of
some of the stock adjustments continuing in 4QFY11E.
Move to ADD (from BUY) with PT intact at Rs480
We value Sun at (1) 23X FY2012E core EPS ex-interest income, (2) cash/share of Rs40, and (3) DCF
value of Para IV challenges. Several triggers exist and likely to result in meaningful upside to
FY2012E EPS
Several triggers exist which could result in meaningful upside to FY2012E EPS
Stock triggers are
(1) Early launch of generic Taxotere by Hospira which is likely to allow SUNP to
come in later ahead of Apotex/Sandoz. We include sales of Taxotere with sales of
US$70 (25% market share, 45% price erosion) assuming a mid-year launch in
FY2012E. This, we believe, will be a meaningful revenue driver going forward due
to limited competition.
(2) Positive ruling by Appeals court regarding Strattera in favor of generic
companies. SUN has received final approval and will enjoy 180-day shared
exclusivity along with 5-7 other companies.
(3) Favorable verdict on generic Eloxatin court hearing. We believe SUN will await
court resolution and may not launch Eloxatin at risk, because despite getting final
approval in Aug 2009 to launch along with Teva/Hospira, SUN chose to wait till
March 2010 till the court enforced the legality of its agreement with Sanofi.
Though SUN has always mentioned that its case is strong, it clearly chose to stay
out of market from Aug 2009 to March 2010. However, SUN may launch post
settlement with Sanofi ahead of competition in August 2012E.
(4) Final approval for Prandin post site switch from Caraco (sole-exclusivity).
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