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Sun Pharmaceuticals (SUNP)
Pharmaceuticals
Weak quarter operationally, FY2012E guidance solid. PAT at Rs4.4 bn was 16%
higher than our estimate due to (1) higher other income and (2) lower tax. However,
EBITDA margin at 30% was 200 bps lower than our estimate due to higher other
expenses (on account of Caraco) and flat qoq. SUN provides strong FY2012E sales
growth guidance of 28-30% implying strong growth in US business excluding
Taro/Taxotere. We leave our FY2012E estimate largely intact, lower FY2013E by 6%.
Retain ADD with PT rolled forward to Rs515 (was Rs480), 23X FY2013E EPS.
4QFY11 sales at Rs14.6 bn, in line with our estimates
Sales were largely in line with our estimates and met SUN’s FY2011 guidance of 42% with
4QFY11 sales at Rs14.6 bn with (1) India up 20% yoy, largely in line with our estimate, (2) Taro
sales at US$108 mn, 8% higher than our estimate, (3) finished dosage exports excluding Taro 8%
higher than our estimate, although flat qoq, and (4) ROW sales up 42% in dollar terms in 4QFY11.
Higher other expenses (on account of Caraco) hit EBITDA margin
EBITDA was 5% lower than our estimate due to lower EBITDA margin at 30%, 200 bps lower than
our estimate primarily on account of higher other expenses which remained flat qoq even though
Taro margin at 30% beat our estimate. Excluding Taro and adjusting for lower material cost on
account of consolidation of Taro, EBITDA margin was at 25% in 4QFY11, lower than our
estimates. Although EBITDA was 5% lower than our estimate, PAT was 16% higher due to (1)
higher other income, (2) lower depreciation, and (3) lower tax rate.
We leave our FY2012E estimates unchanged and lower FY2013E by 6%
We leave our FY2012E estimates unchanged, lower FY2013E by 6%. We believe FY2012E sales
growth guidance is strong and does not include Prandin and therefore implies strong growth in US
business excluding Taro/Taxotere, possibly on account of certain products on which we have
limited visibility currently. We assume 28% sales growth in FY2012E on account of (1) US$70 mn
sales from Taxotere, (2) 20% growth in India versus 23% in FY2011, and (3) 20% dollar growth in
ROW markets versus 7% in FY2011. Total gross sales excluding Taro/exclusivity sales (see table
below) grew 16% in FY2011, according to our analysis; excluding Taxotere, we expect it to grow
at 20% in FY2012E. We expect EBITDA margin excluding Taro to increase to 33% in FY2012E
from 27% in FY2011 due to (1) high margin Taxotere sales, and (2) operating leverage effect.
Maintain ADD with PT at Rs515 (was Rs480), 23X FY2013E EPS ex-interest income of Rs20
We value Sun at (1) 23X FY2013E EPS ex-interest income of Rs20, (2) cash/share of Rs54. Key
upsides to our estimates are (1) resolution at Caraco, Cranbury sites (2) higher than 20% growth
in India/ROW
Key takeaways from conference call
Material cost at 21% of sales in 4QFY11 was lower qoq due to Taro consolidation. On a
normalized basis, material cost was 24%. Excluding Taro, EBITDA margin was at 25% in
4QFY11.
SUN is incurring additional expenses on account of its two sites in US which still remain
under FDA ban and are not generating revenues.
SUN filed 25 ANDAs in FY2011 and expects to file a similar number in FY2012E. While
this is lower than the earlier guidance of 30-35 ANDAs, Sun expects to file more complex
and niche products.
ROW market sales grew 42% in 4QFY11 and 7% in FY2011 on a constant currency basis.
The lower growth in FY2011 was on account of inventory destocking in some markets.
However, underlying prescription growth remains healthy at 20%, according to SUN.
Sales in India finished dosage in FY2011 are reported net of VAT, in contrast to the figure
reported in 9MFY11, which is inclusive of VAT expenses. While India sales grew 23% on
an adjusted base in FY2010, SUN expects the momentum in growth to continue in
FY2012E if market growth is maintained. SUN launched 39 products in FY2011.
Total strength of medical representatives (MRs) in India is 2,700, up by 100 in FY2011.
SUN sees limited scope of expansion in India to other therapeutic categories in the
chronic segment as it is present in almost all important chronic segments. Growth will
therefore come from prescription growth and increasing market share.
SUN expects to launch the DPI inhaler in India developed by SPARC along with Cambridge
Consultants in India in the next 6-8 months.
R&D investment is expected to move upwards in Taro from the level reported in 4QFY11,
which was lower qoq due to reduced clinical cost. SUN expects consolidated R&D at over
6% of sales in FY2012E.
There were no one-offs in Taro financials in 4QFY11.
Capex is expected to increase to Rs4.5 bn on account of (1) investments in Taro facilities,
(2) capacity expansion at existing facilities, and (3) additional spend on three new sites,
including an SEZ.
Tax rate is expected to move upwards in FY2012E on account of higher tax in Sun
excluding Taro.
Cash surplus (Rs22 bn in liquid cash plus part of Rs22 bn of investments) will be used for
acquisitions in US and emerging markets over the long run.
Impact from DEPB withdrawal is likely to be limited to Rs100-150 mn.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun Pharmaceuticals (SUNP)
Pharmaceuticals
Weak quarter operationally, FY2012E guidance solid. PAT at Rs4.4 bn was 16%
higher than our estimate due to (1) higher other income and (2) lower tax. However,
EBITDA margin at 30% was 200 bps lower than our estimate due to higher other
expenses (on account of Caraco) and flat qoq. SUN provides strong FY2012E sales
growth guidance of 28-30% implying strong growth in US business excluding
Taro/Taxotere. We leave our FY2012E estimate largely intact, lower FY2013E by 6%.
Retain ADD with PT rolled forward to Rs515 (was Rs480), 23X FY2013E EPS.
4QFY11 sales at Rs14.6 bn, in line with our estimates
Sales were largely in line with our estimates and met SUN’s FY2011 guidance of 42% with
4QFY11 sales at Rs14.6 bn with (1) India up 20% yoy, largely in line with our estimate, (2) Taro
sales at US$108 mn, 8% higher than our estimate, (3) finished dosage exports excluding Taro 8%
higher than our estimate, although flat qoq, and (4) ROW sales up 42% in dollar terms in 4QFY11.
Higher other expenses (on account of Caraco) hit EBITDA margin
EBITDA was 5% lower than our estimate due to lower EBITDA margin at 30%, 200 bps lower than
our estimate primarily on account of higher other expenses which remained flat qoq even though
Taro margin at 30% beat our estimate. Excluding Taro and adjusting for lower material cost on
account of consolidation of Taro, EBITDA margin was at 25% in 4QFY11, lower than our
estimates. Although EBITDA was 5% lower than our estimate, PAT was 16% higher due to (1)
higher other income, (2) lower depreciation, and (3) lower tax rate.
We leave our FY2012E estimates unchanged and lower FY2013E by 6%
We leave our FY2012E estimates unchanged, lower FY2013E by 6%. We believe FY2012E sales
growth guidance is strong and does not include Prandin and therefore implies strong growth in US
business excluding Taro/Taxotere, possibly on account of certain products on which we have
limited visibility currently. We assume 28% sales growth in FY2012E on account of (1) US$70 mn
sales from Taxotere, (2) 20% growth in India versus 23% in FY2011, and (3) 20% dollar growth in
ROW markets versus 7% in FY2011. Total gross sales excluding Taro/exclusivity sales (see table
below) grew 16% in FY2011, according to our analysis; excluding Taxotere, we expect it to grow
at 20% in FY2012E. We expect EBITDA margin excluding Taro to increase to 33% in FY2012E
from 27% in FY2011 due to (1) high margin Taxotere sales, and (2) operating leverage effect.
Maintain ADD with PT at Rs515 (was Rs480), 23X FY2013E EPS ex-interest income of Rs20
We value Sun at (1) 23X FY2013E EPS ex-interest income of Rs20, (2) cash/share of Rs54. Key
upsides to our estimates are (1) resolution at Caraco, Cranbury sites (2) higher than 20% growth
in India/ROW
Key takeaways from conference call
Material cost at 21% of sales in 4QFY11 was lower qoq due to Taro consolidation. On a
normalized basis, material cost was 24%. Excluding Taro, EBITDA margin was at 25% in
4QFY11.
SUN is incurring additional expenses on account of its two sites in US which still remain
under FDA ban and are not generating revenues.
SUN filed 25 ANDAs in FY2011 and expects to file a similar number in FY2012E. While
this is lower than the earlier guidance of 30-35 ANDAs, Sun expects to file more complex
and niche products.
ROW market sales grew 42% in 4QFY11 and 7% in FY2011 on a constant currency basis.
The lower growth in FY2011 was on account of inventory destocking in some markets.
However, underlying prescription growth remains healthy at 20%, according to SUN.
Sales in India finished dosage in FY2011 are reported net of VAT, in contrast to the figure
reported in 9MFY11, which is inclusive of VAT expenses. While India sales grew 23% on
an adjusted base in FY2010, SUN expects the momentum in growth to continue in
FY2012E if market growth is maintained. SUN launched 39 products in FY2011.
Total strength of medical representatives (MRs) in India is 2,700, up by 100 in FY2011.
SUN sees limited scope of expansion in India to other therapeutic categories in the
chronic segment as it is present in almost all important chronic segments. Growth will
therefore come from prescription growth and increasing market share.
SUN expects to launch the DPI inhaler in India developed by SPARC along with Cambridge
Consultants in India in the next 6-8 months.
R&D investment is expected to move upwards in Taro from the level reported in 4QFY11,
which was lower qoq due to reduced clinical cost. SUN expects consolidated R&D at over
6% of sales in FY2012E.
There were no one-offs in Taro financials in 4QFY11.
Capex is expected to increase to Rs4.5 bn on account of (1) investments in Taro facilities,
(2) capacity expansion at existing facilities, and (3) additional spend on three new sites,
including an SEZ.
Tax rate is expected to move upwards in FY2012E on account of higher tax in Sun
excluding Taro.
Cash surplus (Rs22 bn in liquid cash plus part of Rs22 bn of investments) will be used for
acquisitions in US and emerging markets over the long run.
Impact from DEPB withdrawal is likely to be limited to Rs100-150 mn.
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