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1QFY12 results were largely in-line. We are encouraged at the sequential improvement in OPM,
2nd consecutive quarter of strong Taro profitability and a robust ANDA pipeline. We continue to
like Sun's business model but have a Hold rating on valuations.
Revenues marginally below our estimate..
Sun pharma reported 1QFY12 revenues of Rs16.4bn (+20% yoy), 5% lower than our
estimate of Rs17.2bn. Growth was adversely impacted due to contribution from one-off
gEloxatin sales in the comparable quarter last year and favorably impacted due to the
consolidation of Taro.
The domestic formulation business (41% of FY11 revenues) grew by 12% yoy to Rs6.4bn.
Management has stated that excluding the third party manufacturing business (revenue
contribution of cRs300m in 1QFY11) which has now been discontinued, revenue growth was
18%. Momentum remains strong in this business with the company being ranked no. 1 based
on share of prescriptions with 6 classes of specialists: psychiatrists, neurologists,
cardiologists, ophthalmologists, orthopedics and gastroenterologists. Seven products were
launched during the quarter.
The export formulation business (50% of FY11 revenues) grew 30% yoy to Rs8.7bn, in line
with our estimate. We note that the company has started disclosing US sales (39% of FY11
revenues) from this quarter which was at Rs6.2bn (2% yoy). Growth was muted due to oneoff
contribution from gEloxatin in 1QFY11 partly offset by Taro's consolidation. Taro reported
revenues of US$112m (+14% yoy) in line with our estimate.
Total bulk sales (11% of FY11 revenues) growth was also muted at 4% yoy.
...but OPM improvement results in an in-line EBITDA and PAT
Sun pharma reported an in-line EBITDA due to an improvement in the operating margin on a
sequential basis. EBITDA declined 11% yoy to Rs5.5bn while EBITDA margin contracted by
about 1,166bps yoy to 33.5% due to one-off benefit of gEloxatin in comparable quarter last
year. However on a sequential basis, EBITDA margin expanded 315bps which was
encouraging.
The key reasons for the higher EBITDA margin on a sequential basis were: a) discontinuation
of the third party manufacturing business which had relatively lower margin; and b) lower
SG&A expense. SG&A expense as a percentage of sales reduced from the 28-30% range of
the past three quarters to 24.6%.
R&D expense (revenue share) for the quarter as a percentage of sales was at 5.4% similar to
FY11 levels.
Tax rate continues to be low - 2.5% in 1QFY12 vs. 1.7% in 1QFY11
Sun reported 1QFY12 PAT of Rs5bn (-11% yoy) in line with our estimate.
Taro's consecutive second quarter of strong OPM is encouraging
Taro, Sun pharma's subsidiary (Sun holds 66% stake), recently reported an-line 2QCY11
results. While revenue growth was modest (14%), we were encouraged at its ability to support
its high EBITDA margin. EBITDA margin has now been at c35% for the past two quarters as
compared to 25-28% earlier.
During the quarter, Taro filed two ANDAs and received approval for four. The total number of
products awaiting approval at the FDA is twenty-one ANDAs and one NDA.
ANDA pipeline remains robust
Between Sun pharma and Taro, cumulatively ANDAs for 383 products have been filed with
US FDA approval awaited for 151 products.
While the company has not disclosed any significant one-off opportunities in US in the near
term, we believe that Sun pharma's ANDA pipeline (largest in the country, in our view) should
support its US growth.
Caraco update
On June 14, 2011, the shareholders of Caraco have approved the merger of Caraco with Sun
pharma
Remediation efforts at the Caraco facility in Detroit and the Sun Pharma Industries., Inc
facility in New Jersey are ongoing
More details awaited from analyst call tomorrow
Our current SOTP TP Rs455 is derived by valuing Sun's core business at Rs413/share
(FY12F PE of 23.6x, applying a 10% premium to sector); Taro business at Rs34/share
(FY12F PE of 12.5x) and its Para-IV pipeline at Rs7/share (post 20% execution risk discount).
The stock currently trades at 25.3x and 21.7x on our core FY12F and FY13F earnings.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QFY12 results were largely in-line. We are encouraged at the sequential improvement in OPM,
2nd consecutive quarter of strong Taro profitability and a robust ANDA pipeline. We continue to
like Sun's business model but have a Hold rating on valuations.
Revenues marginally below our estimate..
Sun pharma reported 1QFY12 revenues of Rs16.4bn (+20% yoy), 5% lower than our
estimate of Rs17.2bn. Growth was adversely impacted due to contribution from one-off
gEloxatin sales in the comparable quarter last year and favorably impacted due to the
consolidation of Taro.
The domestic formulation business (41% of FY11 revenues) grew by 12% yoy to Rs6.4bn.
Management has stated that excluding the third party manufacturing business (revenue
contribution of cRs300m in 1QFY11) which has now been discontinued, revenue growth was
18%. Momentum remains strong in this business with the company being ranked no. 1 based
on share of prescriptions with 6 classes of specialists: psychiatrists, neurologists,
cardiologists, ophthalmologists, orthopedics and gastroenterologists. Seven products were
launched during the quarter.
The export formulation business (50% of FY11 revenues) grew 30% yoy to Rs8.7bn, in line
with our estimate. We note that the company has started disclosing US sales (39% of FY11
revenues) from this quarter which was at Rs6.2bn (2% yoy). Growth was muted due to oneoff
contribution from gEloxatin in 1QFY11 partly offset by Taro's consolidation. Taro reported
revenues of US$112m (+14% yoy) in line with our estimate.
Total bulk sales (11% of FY11 revenues) growth was also muted at 4% yoy.
...but OPM improvement results in an in-line EBITDA and PAT
Sun pharma reported an in-line EBITDA due to an improvement in the operating margin on a
sequential basis. EBITDA declined 11% yoy to Rs5.5bn while EBITDA margin contracted by
about 1,166bps yoy to 33.5% due to one-off benefit of gEloxatin in comparable quarter last
year. However on a sequential basis, EBITDA margin expanded 315bps which was
encouraging.
The key reasons for the higher EBITDA margin on a sequential basis were: a) discontinuation
of the third party manufacturing business which had relatively lower margin; and b) lower
SG&A expense. SG&A expense as a percentage of sales reduced from the 28-30% range of
the past three quarters to 24.6%.
R&D expense (revenue share) for the quarter as a percentage of sales was at 5.4% similar to
FY11 levels.
Tax rate continues to be low - 2.5% in 1QFY12 vs. 1.7% in 1QFY11
Sun reported 1QFY12 PAT of Rs5bn (-11% yoy) in line with our estimate.
Taro's consecutive second quarter of strong OPM is encouraging
Taro, Sun pharma's subsidiary (Sun holds 66% stake), recently reported an-line 2QCY11
results. While revenue growth was modest (14%), we were encouraged at its ability to support
its high EBITDA margin. EBITDA margin has now been at c35% for the past two quarters as
compared to 25-28% earlier.
During the quarter, Taro filed two ANDAs and received approval for four. The total number of
products awaiting approval at the FDA is twenty-one ANDAs and one NDA.
ANDA pipeline remains robust
Between Sun pharma and Taro, cumulatively ANDAs for 383 products have been filed with
US FDA approval awaited for 151 products.
While the company has not disclosed any significant one-off opportunities in US in the near
term, we believe that Sun pharma's ANDA pipeline (largest in the country, in our view) should
support its US growth.
Caraco update
On June 14, 2011, the shareholders of Caraco have approved the merger of Caraco with Sun
pharma
Remediation efforts at the Caraco facility in Detroit and the Sun Pharma Industries., Inc
facility in New Jersey are ongoing
More details awaited from analyst call tomorrow
Our current SOTP TP Rs455 is derived by valuing Sun's core business at Rs413/share
(FY12F PE of 23.6x, applying a 10% premium to sector); Taro business at Rs34/share
(FY12F PE of 12.5x) and its Para-IV pipeline at Rs7/share (post 20% execution risk discount).
The stock currently trades at 25.3x and 21.7x on our core FY12F and FY13F earnings.
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