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Differentiated strategy in domestic market to render higher growth
Sun Pharma (SUNP), with its unique ability to identify therapeutic gap areas and
launch products ahead of market, dominates the Indian chronic therapy segment
(62% of domestic sales). The company also tops our survey results and has
emerged an undisputed choice among distributors. SUNP has innovatively built its
doctors franchise by engaging them at an early stage, which enables it to retain
market share. It is now focused on building a wider product portfolio in other
therapies (such as respiratory) and plans to launch 15 products per annum. Recent
tie-up with Merck for differentiated products is likely to further augment the
company’s product pipeline for domestic market, in our view. We expect the
domestic business to grow at 20% CAGR over FY10-13E, higher than peers.
Margin upsides from core business
We expect Taro’s operating margin (27%) to remain under pressure due to lack of
new products in its R&D pipeline, pricing pressure on existing base of business and
integration risk. We expect SUNP’s core EBITDA margins (including Taro) to improve
by 120 bps over FY12-13E, led by higher contribution from domestic and emerging
markets and expected ramp-up from Caraco in H2 FY12.
Current pipeline offers upsides to US generics business
SUNP currently has a large pipeline of 149 pending approvals (including 28
pending Taro and 29 pending Caraco), which will support sustainable growth in
US generics over the next three-four years. We expect the US base business
(ex-taro) to post 15% CAGR over FY11-13E, while special products (Taxotere,
Gemzar, Stalevo) would contribute USD 145-150 mn of sales.
ROW markets to depict strong growth trajectory
The company expects ROW to post strong double-digit growth over the next 3-4
years and is, therefore, raising its localised therapeutic focus. Moreover, the
current tie-up with Merck adds visibility for higher growth from these markets.
Outlook and valuations: Strong levers for growth; maintain ‘HOLD’
We are positive on SUNP over the long term due to its strong franchise in
domestic market and growth potential in the US. However, current valuations
fully discount base business growth and incremental upsides from exclusivitydriven
revenues in the US. We maintain ‘HOLD/Sector Outperformer’
recommendation/rating on the stock
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Differentiated strategy in domestic market to render higher growth
Sun Pharma (SUNP), with its unique ability to identify therapeutic gap areas and
launch products ahead of market, dominates the Indian chronic therapy segment
(62% of domestic sales). The company also tops our survey results and has
emerged an undisputed choice among distributors. SUNP has innovatively built its
doctors franchise by engaging them at an early stage, which enables it to retain
market share. It is now focused on building a wider product portfolio in other
therapies (such as respiratory) and plans to launch 15 products per annum. Recent
tie-up with Merck for differentiated products is likely to further augment the
company’s product pipeline for domestic market, in our view. We expect the
domestic business to grow at 20% CAGR over FY10-13E, higher than peers.
Margin upsides from core business
We expect Taro’s operating margin (27%) to remain under pressure due to lack of
new products in its R&D pipeline, pricing pressure on existing base of business and
integration risk. We expect SUNP’s core EBITDA margins (including Taro) to improve
by 120 bps over FY12-13E, led by higher contribution from domestic and emerging
markets and expected ramp-up from Caraco in H2 FY12.
Current pipeline offers upsides to US generics business
SUNP currently has a large pipeline of 149 pending approvals (including 28
pending Taro and 29 pending Caraco), which will support sustainable growth in
US generics over the next three-four years. We expect the US base business
(ex-taro) to post 15% CAGR over FY11-13E, while special products (Taxotere,
Gemzar, Stalevo) would contribute USD 145-150 mn of sales.
ROW markets to depict strong growth trajectory
The company expects ROW to post strong double-digit growth over the next 3-4
years and is, therefore, raising its localised therapeutic focus. Moreover, the
current tie-up with Merck adds visibility for higher growth from these markets.
Outlook and valuations: Strong levers for growth; maintain ‘HOLD’
We are positive on SUNP over the long term due to its strong franchise in
domestic market and growth potential in the US. However, current valuations
fully discount base business growth and incremental upsides from exclusivitydriven
revenues in the US. We maintain ‘HOLD/Sector Outperformer’
recommendation/rating on the stock
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