Sharon Bio-Medicine Ltd.|Q1FY15 First Cut Analysis | Muted performance for the quarter :: IndiaNivesh

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Sharon Bio-Medicine’s (SBML IN) financial performance for the quarter was much
below estimates, primarily due to lower sales growth. We await clarity from the
management for subdued performance for the quarter and outlook over medium
term. Currently, we have BUY rating with price target of Rs140, based on 10xFY16
earnings. We may review our estimates and price target post clarification from
management.
Muted performance for the quarter
Source: IndiaNivesh Research
A miss on y-y sales growth adversely affects adjusted PAT growth for the quarter:
Sales for the quarter grew at 3% y-y to Rs3.2bn. The y-y sales growth is much lower
than 23% y-y growth achieved in FY14. However, the gross margins have improved
by 336bps y-y and 126bps q-q to 17.6%, probably due to superior product mix with
tilt towards formulation than API. The 111% y-y increase in other expenditure has
been much higher than sales growth, which has led to relatively lower growth in
EBITDA margin for the quarter.The other expenses has been higher due to expenses
incurred for UKMHRA and USFDA approvals. As a result, EBITDA margin came in at
11.9%, up 110 bps y-y. The interest cost continued to rise by 24% y-y to Rs140mn
for the quarter. This is mainly due to higher debt on the balance sheet. Tax rate
reduced sharply from 18.2%y-y and 23.9% q-q to 14.7% for the quarter. Adjusted
Net profit for the quarter grew by 18% y-y to Rs195mn.
Valuation
At CMP of Rs65, the stock is trading at 6.6x FY15E EPS of Rs 9.9 and 4.7x FY16E EPS
of Rs13.9. Currently, we value stock at 10x FY16E earnings to arrive at price target
of Rs140 and have BUY rating on the stock. Though the long term business model
of SBML remains intact, we may review our estimates and price target based on
interaction with management for current performance as well as outlook over
medium term.

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