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Sun Pharmaceuticals’ (SUNP) Q2FY12 PAT of INR5.97bn was 17% above
our INR5.1bn estimate, despite in line revenue, largely led by robust Taro
performance and forex gain. EBTIDA margin at 41% (versus 32% estimate)
was driven by strong show in Taro (45% operating margin) and lower raw
material costs (down 570bps QoQ). While sharp surge in growth and
profitability at Taro is inquisitive, rest of the operations remained on
track. We raise FY12‐13e earnings estimates 3‐5% to factor in improved
performance in Taro and better realizations. Maintain ‘HOLD’.
Taro’s robust operating performance boosts profitability
SUNP reported a strong operating performance driven by 42% YoY revenue growth and
48.5% surge in EBIDTA. EBITDA margin at 41.4% jumped 790bps (QoQ) led by robust
OPM of Taro (45% vs. 28% est.); ex-Taro, EBIDTA margin improved to 38% from 33% in
Q1FY12 due to inventory gains from sharp currency movement (est. INR650-750mn).
PAT at INR5.97bn grew 6% YoY due to increase in minority interest (from Taro
consolidation) and higher tax rate (15.0% versus 2.5% in Q1FY12).
Strong US sales favourably impacted revenue
Performance in base business was in line with domestic growth of 18% YoY (adj. for
INR150mn third party sales), ROW growth of 22% YoY and stable revenue from Caraco
(US generics) at USD54-55mn. Taro sales of USD138mn (34% YoY) were significantly
ahead of our estimate of USD112mn due to sharp surge in US sales. Few one-time
market opportunities aided growth and the same may not be sustainable as per Taro.
Outlook and valuations: Guidance retained; maintain ‘HOLD’
Despite strong profitability in Taro and booster from INR depreciation, management
has maintained growth guidance of 28-30%. We believe this is attainable, given no
base effect from one-offs in second half and growth momentum from Taro which will
not subside completely. However, long-term growth will be driven by potential pipeline
opportunities in US (incl. Taro) and performance in domestic market. We remain
positive on SUNP, but valuations price in earnings growth potential, hence, we
maintain ‘HOLD/Sector Outperformer’ with revised TP of INR550 (INR520 earlier).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun Pharmaceuticals’ (SUNP) Q2FY12 PAT of INR5.97bn was 17% above
our INR5.1bn estimate, despite in line revenue, largely led by robust Taro
performance and forex gain. EBTIDA margin at 41% (versus 32% estimate)
was driven by strong show in Taro (45% operating margin) and lower raw
material costs (down 570bps QoQ). While sharp surge in growth and
profitability at Taro is inquisitive, rest of the operations remained on
track. We raise FY12‐13e earnings estimates 3‐5% to factor in improved
performance in Taro and better realizations. Maintain ‘HOLD’.
Taro’s robust operating performance boosts profitability
SUNP reported a strong operating performance driven by 42% YoY revenue growth and
48.5% surge in EBIDTA. EBITDA margin at 41.4% jumped 790bps (QoQ) led by robust
OPM of Taro (45% vs. 28% est.); ex-Taro, EBIDTA margin improved to 38% from 33% in
Q1FY12 due to inventory gains from sharp currency movement (est. INR650-750mn).
PAT at INR5.97bn grew 6% YoY due to increase in minority interest (from Taro
consolidation) and higher tax rate (15.0% versus 2.5% in Q1FY12).
Strong US sales favourably impacted revenue
Performance in base business was in line with domestic growth of 18% YoY (adj. for
INR150mn third party sales), ROW growth of 22% YoY and stable revenue from Caraco
(US generics) at USD54-55mn. Taro sales of USD138mn (34% YoY) were significantly
ahead of our estimate of USD112mn due to sharp surge in US sales. Few one-time
market opportunities aided growth and the same may not be sustainable as per Taro.
Outlook and valuations: Guidance retained; maintain ‘HOLD’
Despite strong profitability in Taro and booster from INR depreciation, management
has maintained growth guidance of 28-30%. We believe this is attainable, given no
base effect from one-offs in second half and growth momentum from Taro which will
not subside completely. However, long-term growth will be driven by potential pipeline
opportunities in US (incl. Taro) and performance in domestic market. We remain
positive on SUNP, but valuations price in earnings growth potential, hence, we
maintain ‘HOLD/Sector Outperformer’ with revised TP of INR550 (INR520 earlier).
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