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EARNINGS REVIEW
Sun Pharmaceutical Industries (SUN.BO)
Sell Equity Research
In line with expectations: Maintain 24% sales growth for FY12E; Sell
What surprised us
Sun Pharma posted 1QFY12 revenues of Rs16.4 bn (+17% yoy) and EBIT of
Rs4.8 bn (-16% yoy), in line with our estimates but 5%/11% below
Bloomberg consensus. Net income at Rs5 bn was 2%/3% above
GSe/Consensus on lower tax rates (2.5%). Domestic formulations growth
slowed down (+7% yoy), due to termination of a domestic manufacturing
contract. EBIT margins compressed by 1,160 bp yoy to 29.5% (200 bp
below Consensus) due to lack of one-off product opportunities and
increased costs from Taro.
What to do with the stock
We reiterate Sell with a 12-m Director’s Cut-based TP of Rs327, implying 37%
potential downside. 1QFY12 sales imply a run rate of about Rs19.2 bn for the
rest of the three quarters at 8% sequential growth, to achieve Sun’s guidance
of 28%-30% sales growth. We believe that this could be challenging to achieve
and maintain our forecast of 24% FY12E sales growth: (1) in the absence of
major product opportunities in US in FY12 unlike FY11, (2) lower domestic
growth (18% for FY12E vs. 30% in FY11) and (3) increasing competition for
Sun’s Taxotere – we expect limited market share for Sun’s double vial
injection (refer to our note titled Dissecting Sun’s growth prospects; Sell Sun
and Cipla (on CL), dated June 7, 2011. Sun is trading at 26.2X FY12E P/E, at
56%/53% premium to the sector and vs. its 8-yr historical average. We believe
the premium is unjustified considering the 15% EPS CAGR over FY11-FY14E,
which is in line with the sector’s EPS CAGR. Risk: Resolution of FDA issue for
Caraco, re-launch of Eloxatin, favorable verdicts in ongoing litigations.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
EARNINGS REVIEW
Sun Pharmaceutical Industries (SUN.BO)
Sell Equity Research
In line with expectations: Maintain 24% sales growth for FY12E; Sell
What surprised us
Sun Pharma posted 1QFY12 revenues of Rs16.4 bn (+17% yoy) and EBIT of
Rs4.8 bn (-16% yoy), in line with our estimates but 5%/11% below
Bloomberg consensus. Net income at Rs5 bn was 2%/3% above
GSe/Consensus on lower tax rates (2.5%). Domestic formulations growth
slowed down (+7% yoy), due to termination of a domestic manufacturing
contract. EBIT margins compressed by 1,160 bp yoy to 29.5% (200 bp
below Consensus) due to lack of one-off product opportunities and
increased costs from Taro.
What to do with the stock
We reiterate Sell with a 12-m Director’s Cut-based TP of Rs327, implying 37%
potential downside. 1QFY12 sales imply a run rate of about Rs19.2 bn for the
rest of the three quarters at 8% sequential growth, to achieve Sun’s guidance
of 28%-30% sales growth. We believe that this could be challenging to achieve
and maintain our forecast of 24% FY12E sales growth: (1) in the absence of
major product opportunities in US in FY12 unlike FY11, (2) lower domestic
growth (18% for FY12E vs. 30% in FY11) and (3) increasing competition for
Sun’s Taxotere – we expect limited market share for Sun’s double vial
injection (refer to our note titled Dissecting Sun’s growth prospects; Sell Sun
and Cipla (on CL), dated June 7, 2011. Sun is trading at 26.2X FY12E P/E, at
56%/53% premium to the sector and vs. its 8-yr historical average. We believe
the premium is unjustified considering the 15% EPS CAGR over FY11-FY14E,
which is in line with the sector’s EPS CAGR. Risk: Resolution of FDA issue for
Caraco, re-launch of Eloxatin, favorable verdicts in ongoing litigations.
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