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Sun Pharmaceuticals Limited — This one never
sets; New Buy
Initial Opinion
Initiate with Buy, 18% potential upside
We initiate coverage on Sun Pharma with a Buy rating and PO of Rs565. Sun
Pharma is fastest growing company with 5-yr sales/profit CAGR of 29%/26%
respectively and enjoys highest margins amongst peers. Over FY11-13E, we
expect 21% profit CAGR, driven by (1) integration with Taro Pharma, and (2)
sustained growth momentum in domestic formulations and US generics. Our PO
is based on 22x P/E FY13E, in line with historical 10% premium to peers.
Our forecast towards lower end of guidance
We expect 28% growth in FY12E, compared to 28-30% growth guidance by
management, but ~24% for consensus. This should be driven by (1) sustained
momentum in domestic formulations, similar to historic growth rates, (2) full
impact of Taro Pharma integration, and (3) niche launches in US market, partially
offsetting significant contribution from Eloxatin last year i.e. Taxotere, Lexapro.
Margins to moderate slightly
We expect margins to moderate over the next two years, due to (1) full impact of
acquisition of relatively lower contribution of Taro (~26% EBITDA margins vs
~35% ex-Taro), and (2) lower contribution from niche products in US. However,
with integration benefits expected to flow, we expect rebound post-FY12E.
Premium valuation to sustain
Sun Pharma trades towards higher end of historical P/E band, and 15% premium
to peers. We justify historical peer premium due to superior margin/return
parameters, stronger balance sheet (net cash US$950mn) and richest ANDA
pipeline with likely Para IV opportunities.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun Pharmaceuticals Limited — This one never
sets; New Buy
Initial Opinion
Initiate with Buy, 18% potential upside
We initiate coverage on Sun Pharma with a Buy rating and PO of Rs565. Sun
Pharma is fastest growing company with 5-yr sales/profit CAGR of 29%/26%
respectively and enjoys highest margins amongst peers. Over FY11-13E, we
expect 21% profit CAGR, driven by (1) integration with Taro Pharma, and (2)
sustained growth momentum in domestic formulations and US generics. Our PO
is based on 22x P/E FY13E, in line with historical 10% premium to peers.
Our forecast towards lower end of guidance
We expect 28% growth in FY12E, compared to 28-30% growth guidance by
management, but ~24% for consensus. This should be driven by (1) sustained
momentum in domestic formulations, similar to historic growth rates, (2) full
impact of Taro Pharma integration, and (3) niche launches in US market, partially
offsetting significant contribution from Eloxatin last year i.e. Taxotere, Lexapro.
Margins to moderate slightly
We expect margins to moderate over the next two years, due to (1) full impact of
acquisition of relatively lower contribution of Taro (~26% EBITDA margins vs
~35% ex-Taro), and (2) lower contribution from niche products in US. However,
with integration benefits expected to flow, we expect rebound post-FY12E.
Premium valuation to sustain
Sun Pharma trades towards higher end of historical P/E band, and 15% premium
to peers. We justify historical peer premium due to superior margin/return
parameters, stronger balance sheet (net cash US$950mn) and richest ANDA
pipeline with likely Para IV opportunities.
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