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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● FY11 Annual Report is positive on several fronts including
reductions in working capital and contingent income tax liabilities,
and improvement in returns on investment.
● The WC cycle has now reduced to 4.5 months from 6+ last year.
Taro’s integration also helped as WC for Taro is shorter at 3.5-4
months. Receivable days halved from those in FY08 but
receivables more than 6M now account for 40+% vs. 10% earlier.
● Return on the investments (US$1 bn) improved as the proportion
invested in fixed deposits increased to 35% (versus 6% last year).
In the past, return on FDs had been in line with the market but
return on rest of the portfolio had been low (Fig. 2). Currently 15%
of the portfolio is in current accounts yielding zero returns.
● Sun Pharma created another partnership firm ‘Sun Pharma Drugs’
with a 98% holding by Sun. We believe the entity is created for the
new capacities for which Sun is investing in FY12. Partnership
firms are not required to pay MAT.
● Contingent income tax liability declined from Rs4.3 bn to Rs2.6 bn
and after four years, cash taxes paid were in line with P&L tax.
Figure 1: Partnership profits now almost moved fully to the Sikkim site
FY09 FY10 FY11
Sikkim 0% 68% 93%
Jammu & Dadra 100% 32% 7%
Source: Company data, Credit Suisse estimates.
Another partnership firm created in FY11
Sun Pharma has two operational partnership firms in Sikkim and
Jammu & Dadra. These firms mainly cater to the domestic market and
are not required to pay MAT. As the tax advantage expired in Jammu
& Dadra facilities, the production has now mainly shifted to the Sikkim
facility (Fig. 1). In addition, a new partnership firm, Sun Pharma Drugs,
has been created with a 98% holding by Sun and 2% by key
Employees’ Benefit Trust. We believe this entity has been created for
the new capacities for which Sun is investing in FY12.
Return on investments improved in FY11
The return on the investments (now US$1 bn) has been weak for Sun
over the last three years (Fig. 2). Although the return on fixed deposits
has been in line with the market, the return on rest of the portfolio has
been low. About 15% of total portfolio is in current accounts yielding
zero returns. Overall returns improved in FY11, as percent of portfolio
invested in fixed deposits increased to 35% (from 6% in FY10).
Working capital cycle improved as receivables declined
The WC cycle for Sun has now reduced to 4.5 months from 6+
months in FY10. Taro’s integration also helped as the WC cycle for
Taro is shorter at ~3.5-4 months. Receivable days have now almost
halved from highs of 2008 but the profiles of receivable days have
changed now. Receivables more than six months used to be only 10%
of total receivables earlier but now have increased to 40+%.
Contingent liability for income tax declined in FY11
Contingent liability for income tax on account of disallowances has
now come down to Rs2.6 bn from Rs4.3 bn in FY10. Additionally, after
four years, cash taxes paid were in line with the P&L tax rate
● Taro has net deferred tax assets of Rs3 bn which would be
available to reduce tax in future. These tax losses have arisen due
to excessive product returns in the past.
● Caraco 4Q11 sales were US$33.3 mn with a US$4.7 mn PAT loss.
● In LatAm markets, the filing of products from the facilities at
Mexico and Brazil has commenced.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● FY11 Annual Report is positive on several fronts including
reductions in working capital and contingent income tax liabilities,
and improvement in returns on investment.
● The WC cycle has now reduced to 4.5 months from 6+ last year.
Taro’s integration also helped as WC for Taro is shorter at 3.5-4
months. Receivable days halved from those in FY08 but
receivables more than 6M now account for 40+% vs. 10% earlier.
● Return on the investments (US$1 bn) improved as the proportion
invested in fixed deposits increased to 35% (versus 6% last year).
In the past, return on FDs had been in line with the market but
return on rest of the portfolio had been low (Fig. 2). Currently 15%
of the portfolio is in current accounts yielding zero returns.
● Sun Pharma created another partnership firm ‘Sun Pharma Drugs’
with a 98% holding by Sun. We believe the entity is created for the
new capacities for which Sun is investing in FY12. Partnership
firms are not required to pay MAT.
● Contingent income tax liability declined from Rs4.3 bn to Rs2.6 bn
and after four years, cash taxes paid were in line with P&L tax.
Figure 1: Partnership profits now almost moved fully to the Sikkim site
FY09 FY10 FY11
Sikkim 0% 68% 93%
Jammu & Dadra 100% 32% 7%
Source: Company data, Credit Suisse estimates.
Another partnership firm created in FY11
Sun Pharma has two operational partnership firms in Sikkim and
Jammu & Dadra. These firms mainly cater to the domestic market and
are not required to pay MAT. As the tax advantage expired in Jammu
& Dadra facilities, the production has now mainly shifted to the Sikkim
facility (Fig. 1). In addition, a new partnership firm, Sun Pharma Drugs,
has been created with a 98% holding by Sun and 2% by key
Employees’ Benefit Trust. We believe this entity has been created for
the new capacities for which Sun is investing in FY12.
Return on investments improved in FY11
The return on the investments (now US$1 bn) has been weak for Sun
over the last three years (Fig. 2). Although the return on fixed deposits
has been in line with the market, the return on rest of the portfolio has
been low. About 15% of total portfolio is in current accounts yielding
zero returns. Overall returns improved in FY11, as percent of portfolio
invested in fixed deposits increased to 35% (from 6% in FY10).
Working capital cycle improved as receivables declined
The WC cycle for Sun has now reduced to 4.5 months from 6+
months in FY10. Taro’s integration also helped as the WC cycle for
Taro is shorter at ~3.5-4 months. Receivable days have now almost
halved from highs of 2008 but the profiles of receivable days have
changed now. Receivables more than six months used to be only 10%
of total receivables earlier but now have increased to 40+%.
Contingent liability for income tax declined in FY11
Contingent liability for income tax on account of disallowances has
now come down to Rs2.6 bn from Rs4.3 bn in FY10. Additionally, after
four years, cash taxes paid were in line with the P&L tax rate
● Taro has net deferred tax assets of Rs3 bn which would be
available to reduce tax in future. These tax losses have arisen due
to excessive product returns in the past.
● Caraco 4Q11 sales were US$33.3 mn with a US$4.7 mn PAT loss.
● In LatAm markets, the filing of products from the facilities at
Mexico and Brazil has commenced.
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