Sun Pharmaceuticals - Robust India & US franchise:: Macquarie Research,

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Sun Pharmaceuticals
Robust India & US franchise
Event
 Sun Pharma, which started in 1983, makes speciality pharmaceuticals and active
pharmaceutical ingredients. Its brands are prescribed in chronic therapy areas like
cardiology, psychiatry, neurology, gastroenterology and diabetes. Sun derives
50% of its revenues from the domestic market and the balance from international
operations (including the US generics business). Sun caters to the US generic
market through its 76%-owned subsidiary, Caraco. Including Taro, Sun will have
~150 ANDAs pending approval, the second-largest pipeline in the US after Teva.

Impact
 Domestic franchise – rock solid: Sun is one of the leading pharmaceuticals
players in India holds a 3.7% market share. The key drivers are increasing
demand for generics globally and leadership sustained by Sun in key chronic
therapies in India. Strong relations with specialists are a steep entry barrier for
competition. Sun remains one of the most profitable players in the India
pharmaceuticals space.
 US business boosted by Taro acquisition: Including Taro, Sun will have
~150 ANDAs pending approval, the second-largest pipeline in the US after
Teva. Taro is an excellent fit for Sun, with dermatological and paediatric
products and with few overlaps. US is the largest market for Taro, accounting
for 75% of its revenue. Roughly 60% of Taro's revenue comes from
dermatological products, with a rich mix of topical ointments and steroids that
face limited competition due to manufacturing complexity.
 Caraco-Slow recovery: It’s unlikely that manufacturing can begin at Caraco
facility anytime soon. Meanwhile manufacturing site transfer to Sun Pharma
has helped regain some revenues. Sun plans to buy the remaining 24%
minority stake, and is awaiting Caraco’s reply, on the same.
 US key product opportunities: 1) Docetaxel: Sun is awaiting FDA approval
but did not provide time-line (our estimate 1QFY12 launch); 2) Prandin: Post a
favourable ruling by a US court Caraco is awaiting FDA approval (we believe
SUN has applied for a site switch and should monetize the FTF in FY12;
3) Eloxatin: Despite a win at appeals court, SUN has not decided to launch.
Action and recommendation
 We believe Sun’s long-term fundamentals remain intact. However, in our
view, the current price leaves little valuation buffer. Sun is trading at 22x
FY12E earnings and, we believe it is prudent to add on weakness. Maintain
Neutral rating with TP of Rs437.


Sun Pharmaceuticals Aide Memoire
Company
1. What would be the approximate margins in the India business?
2. Update on key products pipeline in US (Prandin, Docetaxel, Eloxatin)?
3. Market share updates on key products already launched (Effexor-XR, Exelon)
4. What is SUNP strategy in SRM/Emerging markets? Expansion or focus on profitability?
5. What is the current net Cash?
6. Future capex plan?
7. Outlook for the Bulk business from 1-2 years perspective?
8. Any acquisition plans in near future?
9. Update on the NCE/NBE pipeline?
10. What is the break-up of R&D expense between NCE & Generics business?
Industry
1. How attractive are the emerging markets (Russia, LATAM, South Africa etc) from a 3-5 years perspective? What would be
yours strategy going forward? How is the regulatory framework in each of these markets?
2. Is profitability/margins in Indian markets sustainable? How do you want yourself to position in Indian markets from a 3-5
years perspective? What will drive growth going forward?
3. What is the outlook on API business for Indian players from a timeframe of 2-3 years?