Sun Pharma :: Karvy

Revenues Outperform due to URL
Sun Pharma’s revenues grew by 31.5% to Rs30.7bn for the quarter as
against our estimates of Rs29.2bn. EBDITA margins were at 41.5%,
marginally higher than Q4 FY12 due to URL and Dusa overheads. Profits
were at Rs 10.1 bn higher than our estimates of Rs 9.1 bn.
 Revenue Details: Domestic formulations clocked a degrowth of 11% on
account of high base impact last year due to change in accounting in
returns and discounts. US sales grew by 56% to USD 330 mn due to 2
mths impact of URL sales and full impact of Dusa sales. Taro sales were
down QoQ to USD 165 mn due to lower volume offtake. We believe
Doxil did not have a major impact in this quarter.
 Margins impact due to URL and Dusa: The company’s EBDITAM was at
41.5% as against 41.2% in corresponding quarter of the previous year.
Substantial savings of 380 bps in Gross margins was offset by growth in
staff cost by 27% to Rs4.4bn and increase in overheads by 52% to Rs6.2bn.
R & D was also higher at 7% of revenues as against our expectation of
6.5%. Profits for the quarter were higher at Rs10.1bn as against our
expectation of Rs9.1bn for the quarter. Profits were higher on account of
lower tax of 13.8% on account of subsidiary losses and lower minority
interest.
Outlook and Valuation: We upgrade our revenue estimates by 3.5% to
Rs134bn and by 4% to Rs150bn due to incorporation of URL Pharma in our
core financials, while we remove the option value of URL Pharma of Rs33
from our valuation. Our EBDITAM is increasing by 90 bps in FY14E and by
70 bps in FY15E due to better gross margins and savings in overheads. We
upgrade our EPS by 13.1% to Rs39.5 for FY14E and by 10.9 % to Rs46 for
FY15E. We upgrade our price target by 9.4% to Rs1,058 based on 23x FY15E.
At current market price stock trades at 21.6x FY15E offering a 6% upside,
hence we downgrade the stock from BUY to HOLD.

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