Sun Pharma
Buy
Target Price: Rs892
CMP: Rs837
Upside: 6.6%
Good overall performance
We recently interacted with the Investor Relations team of Sun Pharmaceutical Industries (SPIL) to get the latest update on the company. The key highlights were:
m Good quarterly performance: For Q3FY13, SPIL reported 33%YoY growth in revenues, 50bps decline in EBIDTA margin at 44.5% and 32%YoY growth in net profit.
m Domestic formulation business transferred to 100% subsidiary: SPIL has transferred its domestic formulation business to a 100% subsidiary for better focus. The domestic formulations business grew by 13%YoY during Q3FY13. The company ranked 3rd and holds 4.8% MS in the Rs690.0bn domestic pharma market.
m Rich product pipeline for US market: The company has a rich pipeline of products for the US market. The US business is likely to grow with the recent acquisition of Dusa, US and generic business of URL. SPIL along with Taro has filed 403 ANDAs with US FDA of which 261 have been approved. URL has 107 approved ANDAs in the US making it one of the largest product pipelines. The company has filed 232 DMFs of which 161 have been approved.
m Taro continues better performance: For Q3FY13, Taro Pharma reported 25% YoY growth in revenues, 580bps improvement in EBIDTA margin at 56.0% and 43% growth in net profit. However, sales volumes have slightly declined. The recent price increase by Taro in the US may not be sustainable. Taro has 17 ANDAs pending approval with US FDA.
m Launch of generic Doxil in the US: SPIL has launched generic Doxil in the US on recent approval from US FDA. The company was supplying Lipodox (generic Doxil) in the US due to the shortage of this drug there. The market size for generic Doxil in the US was~$250mn before the shortage. In October’12, Johnson & Johnson (J & J) re-entered the market with the change in the manufacturing process of Doxil. Currently, J & J is selling an unapproved product in the US market. SPIL expects good MS for this product as there is no competition currently.
m Termination of Taro agreement: SPIL and Taro have mutually agreed to terminate their merger agreement of August’12 to acquire the minority stake in Taro at $39.5 per share in the interest of both companies. SPIL currently holds 66.3% stake in Taro.
m Acquisitions in US and emerging markets: SPIL and Caraco recently acquired Dusa, US and URL, the non-Colcrys (colchicine) generic business of Takeda in the US. There is no major product overlap between URL and SPIL. The company is looking at other acquisitions in the US and other emerging markets.
m Raising of funds: The Board of Directors of SPIL have resolved to raise funds up to Rs80.0bn (Rs8,000Cr) at an appropriate time through domestic/international offerings. This is an enabling resolution for any potential acquisition in future.
m Provision for Protonix litigation: SPIL has provided Rs5.84bn ($107mn) in Q2FY13 towards damages in respect of patent infringement litigation of generic Protonix against Wyeth. The District Court ruling is expected in June’13. Wyeth has demanded $960mn from SPIL as potential damages of generic Protonix.
m Domestic formulation business transferred to 100% subsidiary: SPIL has transferred its domestic formulation business to a 100% subsidiary for better focus. The domestic formulations business grew by 13%YoY during Q3FY13. The company ranked 3rd and holds 4.8% MS in the Rs690.0bn domestic pharma market.
m Rich product pipeline for US market: The company has a rich pipeline of products for the US market. The US business is likely to grow with the recent acquisition of Dusa, US and generic business of URL. SPIL along with Taro has filed 403 ANDAs with US FDA of which 261 have been approved. URL has 107 approved ANDAs in the US making it one of the largest product pipelines. The company has filed 232 DMFs of which 161 have been approved.
m Taro continues better performance: For Q3FY13, Taro Pharma reported 25% YoY growth in revenues, 580bps improvement in EBIDTA margin at 56.0% and 43% growth in net profit. However, sales volumes have slightly declined. The recent price increase by Taro in the US may not be sustainable. Taro has 17 ANDAs pending approval with US FDA.
m Launch of generic Doxil in the US: SPIL has launched generic Doxil in the US on recent approval from US FDA. The company was supplying Lipodox (generic Doxil) in the US due to the shortage of this drug there. The market size for generic Doxil in the US was~$250mn before the shortage. In October’12, Johnson & Johnson (J & J) re-entered the market with the change in the manufacturing process of Doxil. Currently, J & J is selling an unapproved product in the US market. SPIL expects good MS for this product as there is no competition currently.
m Termination of Taro agreement: SPIL and Taro have mutually agreed to terminate their merger agreement of August’12 to acquire the minority stake in Taro at $39.5 per share in the interest of both companies. SPIL currently holds 66.3% stake in Taro.
m Acquisitions in US and emerging markets: SPIL and Caraco recently acquired Dusa, US and URL, the non-Colcrys (colchicine) generic business of Takeda in the US. There is no major product overlap between URL and SPIL. The company is looking at other acquisitions in the US and other emerging markets.
m Raising of funds: The Board of Directors of SPIL have resolved to raise funds up to Rs80.0bn (Rs8,000Cr) at an appropriate time through domestic/international offerings. This is an enabling resolution for any potential acquisition in future.
m Provision for Protonix litigation: SPIL has provided Rs5.84bn ($107mn) in Q2FY13 towards damages in respect of patent infringement litigation of generic Protonix against Wyeth. The District Court ruling is expected in June’13. Wyeth has demanded $960mn from SPIL as potential damages of generic Protonix.
Thanks & Regards,
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