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Ex contract manufacturing, we expect domestic formulation growth at 20%
We expect Sun Pharma to sustain growth ahead of the industry average in the domestic
market. As per AIOCD AWACS data, Sun recorded 25-29% y-y growth in October-
November 2011, substantially higher than the broader market growth rate of 14-15% in
this period. Note that the company had discontinued its contract manufacturing business
during 1QFY12, which was earlier reported under domestic formulation. Excluding the
contract manufacturing business, which contributed INR140mn in 3QFY11, we project
net sales growth of 20% y-y for 3QFY12. Including the loss in contract manufacturing
revenues, we estimate domestic formulation growth of 17%.
Taro sales likely to remain robust on higher pricing opportunity; we build in some
decline q-q
In the US, some of the recent approvals for SUNP include Diltiazem and Tramadol. We
expect sequential growth of USD9mn in the non-Taro business on back of growth in
older products and new launches. As per the IMS data released so far, SUNP gained
20% market share in Uroxatral in November 2011, which was launched under shared
exclusivity. Taro recorded strong USD27mn sequential increase in sales in 2QFY12. The
increase was largely driven by price increases. As per management, the increase is not
likely to sustain over the long term. We have factored in some moderation in Taro's
estimate, as we factor in revenue of USD125m vs USD138m in the previous quarter.
Margins to remain robust on favourable inventory valuation on currency
movement and higher other income
We expect overall revenue growth at 24% y-y in 3QFY12. Excluding Taro, sales are
likely to grow at 21% y-y. SUNP’s gross margin has been volatile in the past. The
company revalues foreign inventory on period-ending exchange rates, and that has an
impact on the gross margin, in our view. The depreciation of INR inflates inventory value
in INR terms and to that extent positively impacts gross margins. Given the similar level
of depreciation in INR against the USD, in 2Q and 3QFY12, we build in material cost at
20.5% of sales, at same level as in the previous quarter. We note that this accounting is
very different from what is presented by most other companies, who value inventory at
historical costs. We project EBITDA growth at 76%, significantly ahead of the revenue
growth rate at 24.1%. We project other income at lower than in 2QFY12 as we don't
build in forex gains recorded by Taro in the previous quarter. Our tax rate estimate is 9%
in 3QFY12.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Ex contract manufacturing, we expect domestic formulation growth at 20%
We expect Sun Pharma to sustain growth ahead of the industry average in the domestic
market. As per AIOCD AWACS data, Sun recorded 25-29% y-y growth in October-
November 2011, substantially higher than the broader market growth rate of 14-15% in
this period. Note that the company had discontinued its contract manufacturing business
during 1QFY12, which was earlier reported under domestic formulation. Excluding the
contract manufacturing business, which contributed INR140mn in 3QFY11, we project
net sales growth of 20% y-y for 3QFY12. Including the loss in contract manufacturing
revenues, we estimate domestic formulation growth of 17%.
Taro sales likely to remain robust on higher pricing opportunity; we build in some
decline q-q
In the US, some of the recent approvals for SUNP include Diltiazem and Tramadol. We
expect sequential growth of USD9mn in the non-Taro business on back of growth in
older products and new launches. As per the IMS data released so far, SUNP gained
20% market share in Uroxatral in November 2011, which was launched under shared
exclusivity. Taro recorded strong USD27mn sequential increase in sales in 2QFY12. The
increase was largely driven by price increases. As per management, the increase is not
likely to sustain over the long term. We have factored in some moderation in Taro's
estimate, as we factor in revenue of USD125m vs USD138m in the previous quarter.
Margins to remain robust on favourable inventory valuation on currency
movement and higher other income
We expect overall revenue growth at 24% y-y in 3QFY12. Excluding Taro, sales are
likely to grow at 21% y-y. SUNP’s gross margin has been volatile in the past. The
company revalues foreign inventory on period-ending exchange rates, and that has an
impact on the gross margin, in our view. The depreciation of INR inflates inventory value
in INR terms and to that extent positively impacts gross margins. Given the similar level
of depreciation in INR against the USD, in 2Q and 3QFY12, we build in material cost at
20.5% of sales, at same level as in the previous quarter. We note that this accounting is
very different from what is presented by most other companies, who value inventory at
historical costs. We project EBITDA growth at 76%, significantly ahead of the revenue
growth rate at 24.1%. We project other income at lower than in 2QFY12 as we don't
build in forex gains recorded by Taro in the previous quarter. Our tax rate estimate is 9%
in 3QFY12.
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