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Sun Pharma post Taro looks structurally well positioned, as 83% of its revenues are now from the
US (robust ANDA pipeline) and India (stable growth). US FDA issues at Caraco and EBITDA
margin pressure remain our concerns. Even so, we raise our TP 11% to Rs420. With limited
upside, however, we upgrade to Hold.
Favourable business mix puts Sun Pharma in a sweet spot
Sun Pharma has a more favourable business mix than its peers, in our view, with 83% of its
revenues generated from our preferred markets of India (43% of its 9MFY11 revenues) and US
(40%, post Taro acquisition). We see no large exclusive opportunities from US drugs going offpatent
(given the limited information), but we believe limited-competition opportunities like generic
Taxotere and 149 ANDAs awaiting approval (more than peers) will be its key growth drivers. Sun
Pharma does not disclose the nature of the ANDA pipeline in terms of potential addressable
market or Para IV/FTFs, but we expect growth momentum in the core US business to continue.
Taro (complementary product portfolio) and Caraco (proposed merger) would strengthen US
business, in our view. We also expect the domestic business to continue to surpass industry
growth given its strong product basket.
Concerns on Caraco and Taro could continue to affect near-term EBITDA margins
We like the company’s business mix, but note that resolving US FDA issues at Caraco and
getting Taro up to speed will likely be gradual and slow processes. The possibility of Taro
restating past financials (as they are unaudited and have been revised in the past when audited)
is also a concern. We therefore expect EBITDA margin to remain under pressure in the near term
due to higher operating overheads that could be partially offset by the launch of gTaxotere in the
near term.
Business model appears sound, but appears fairly priced; upgrade to Hold
We factor in a potential generic Taxotere contribution and raise our FY12F/13F earnings by
12/19%. We value Sun’s core business at Rs387 (21.4x FY12F PE in line with the sector)
compared to our earlier value of Rs349. Adding Taro’s value (Rs25) and one-offs (Rs7), we
calculate our SOTP -based target price at Rs420 (Rs380 earlier). While Sun’s strong ANDA
pipeline could surprise, upside looks limited from current levels. Thus, we upgrade to Hold.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun Pharma post Taro looks structurally well positioned, as 83% of its revenues are now from the
US (robust ANDA pipeline) and India (stable growth). US FDA issues at Caraco and EBITDA
margin pressure remain our concerns. Even so, we raise our TP 11% to Rs420. With limited
upside, however, we upgrade to Hold.
Favourable business mix puts Sun Pharma in a sweet spot
Sun Pharma has a more favourable business mix than its peers, in our view, with 83% of its
revenues generated from our preferred markets of India (43% of its 9MFY11 revenues) and US
(40%, post Taro acquisition). We see no large exclusive opportunities from US drugs going offpatent
(given the limited information), but we believe limited-competition opportunities like generic
Taxotere and 149 ANDAs awaiting approval (more than peers) will be its key growth drivers. Sun
Pharma does not disclose the nature of the ANDA pipeline in terms of potential addressable
market or Para IV/FTFs, but we expect growth momentum in the core US business to continue.
Taro (complementary product portfolio) and Caraco (proposed merger) would strengthen US
business, in our view. We also expect the domestic business to continue to surpass industry
growth given its strong product basket.
Concerns on Caraco and Taro could continue to affect near-term EBITDA margins
We like the company’s business mix, but note that resolving US FDA issues at Caraco and
getting Taro up to speed will likely be gradual and slow processes. The possibility of Taro
restating past financials (as they are unaudited and have been revised in the past when audited)
is also a concern. We therefore expect EBITDA margin to remain under pressure in the near term
due to higher operating overheads that could be partially offset by the launch of gTaxotere in the
near term.
Business model appears sound, but appears fairly priced; upgrade to Hold
We factor in a potential generic Taxotere contribution and raise our FY12F/13F earnings by
12/19%. We value Sun’s core business at Rs387 (21.4x FY12F PE in line with the sector)
compared to our earlier value of Rs349. Adding Taro’s value (Rs25) and one-offs (Rs7), we
calculate our SOTP -based target price at Rs420 (Rs380 earlier). While Sun’s strong ANDA
pipeline could surprise, upside looks limited from current levels. Thus, we upgrade to Hold.
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