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Sun Pharma (SUNP IN)
Downgrading to Neutral: Growth is turning expensive
Net profit at INR5bn in line with our estimate, assisted by
higher other income, better Taro and low tax
Ex Taro emerging market sales perform better, net sales
growth guidance maintained at 28-30% for FY12
Downgrading to Neutral, target raised INR575 (from INR545),
minor estimate changes
Sun Pharma reported 1QFY12 net profit of INR5bn, in line with the HSBC estimate
of INR4.97bn (c3% above consensus at INR 4.89bn). Sales at INR16.3bn were up 19.8%
yoy and are in line with our estimates (despite high base from oxaliplatin sales in
1QFY11) essentially due to consolidation of Taro. Domestic formulations sales came
lower at INR6.4 bn (yoy 12%), adjusting for discontinued contract sales growth is at
18%yoy. EBITDA margins for the quarter came at 33.5%. Net profit was benefited by
lower tax rate and higher other income.
Net sales growth guidance intact at 28-30%: Sun Pharma maintained its growth
guidance for full year implying c30% yoy growth for remaining 9mth period. While
guidance appears stretched, we expect both US and India to perform better in 2HFY12.
Sun launched 7 products during the quarter in domestic market including diabetes product
sitagliptin, which was licensed from Merck and plans to launch sitagliptin and metformin
combination during Q2FY12. The company has c4.4% market share in India.
Taro and RoW were strong: Taro reported sales of USD112 mn above our expectations
of USD108mn. Net profit for Taro for the quarter was USD36mn benefiting mainly from
lower R&D expenses and tax benefits. Emerging markets (ex-Taro) too grew strongly.
Pipeline is rich but growth is fairly valued: Sun has the largest pipeline among Indian
generics with 151 ANDAs pending approval with FDA. We have modelled c27% growth
in FY12e. We are increasing our estimates in US essentially on the back of strong
performance of Taro, and building higher other income. Our EPS estimates increase by
c6% for both FY12 and FY13. SUNP has outperformed Sensex by c10% over last 2mths.
We downgrade the stock to Neutral from OW essentially due to rich valuations. We
continue to value SUNP at 24x FY13e EPS. Our new target at INR575 offers potential
return of 11% at current stock prices. Key risk is delay in US approvals, protonix related
damages and slippage in Taro’s core performance. As of July 29, 2011 closing price, the
stock is trading at 26x FY12e and 22x FY13e earning estimates.
Conference call highlights
1 In domestic formulation market, the company has maintained sales growth of c18 % excluding third
party business that has been discontinued. Sales from such operations in 1QFY11 were INR290mn
(INR630mn for FY11). Sun Pharma retains leadership positions in six key therapeutic classes:
psychiatry, neurology, cardiology, ophthalmology, orthopedics and gastroenterology. The company
plans to launch DPI product through SPARC in 2QFY12.
2 Taro has filed 20-F for 2010. Taro received 4 ANDA approvals in the quarter. Of the cumulative
ANDAs pending approval, Taro has 21 ANDAs and one NDA pending approval with FDA.
3 Total R&D expense was cINR885mn for 1QFY12 (5.4% of total sales). During the quarter, the
company has filed six ANDAs (4 by Sun Pharma and 2 by Taro). Cumulative ANDA filing with the
FDA currently stands at 383, of which 151 are pending approval (including 19 tentative approvals).
4 The first product launch from MSD deal for emerging market will take at least three years from now.
This deal is mainly focused on differentiated products.
5 Capex guidance for FY12 is cUSD100mn; net cash for the company is cUSD1bn
6 The company is looking for growth in large emerging markets through inorganic route preferring
sizable acquisitions over small acquisitions.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Sun Pharma (SUNP IN)
Downgrading to Neutral: Growth is turning expensive
Net profit at INR5bn in line with our estimate, assisted by
higher other income, better Taro and low tax
Ex Taro emerging market sales perform better, net sales
growth guidance maintained at 28-30% for FY12
Downgrading to Neutral, target raised INR575 (from INR545),
minor estimate changes
Sun Pharma reported 1QFY12 net profit of INR5bn, in line with the HSBC estimate
of INR4.97bn (c3% above consensus at INR 4.89bn). Sales at INR16.3bn were up 19.8%
yoy and are in line with our estimates (despite high base from oxaliplatin sales in
1QFY11) essentially due to consolidation of Taro. Domestic formulations sales came
lower at INR6.4 bn (yoy 12%), adjusting for discontinued contract sales growth is at
18%yoy. EBITDA margins for the quarter came at 33.5%. Net profit was benefited by
lower tax rate and higher other income.
Net sales growth guidance intact at 28-30%: Sun Pharma maintained its growth
guidance for full year implying c30% yoy growth for remaining 9mth period. While
guidance appears stretched, we expect both US and India to perform better in 2HFY12.
Sun launched 7 products during the quarter in domestic market including diabetes product
sitagliptin, which was licensed from Merck and plans to launch sitagliptin and metformin
combination during Q2FY12. The company has c4.4% market share in India.
Taro and RoW were strong: Taro reported sales of USD112 mn above our expectations
of USD108mn. Net profit for Taro for the quarter was USD36mn benefiting mainly from
lower R&D expenses and tax benefits. Emerging markets (ex-Taro) too grew strongly.
Pipeline is rich but growth is fairly valued: Sun has the largest pipeline among Indian
generics with 151 ANDAs pending approval with FDA. We have modelled c27% growth
in FY12e. We are increasing our estimates in US essentially on the back of strong
performance of Taro, and building higher other income. Our EPS estimates increase by
c6% for both FY12 and FY13. SUNP has outperformed Sensex by c10% over last 2mths.
We downgrade the stock to Neutral from OW essentially due to rich valuations. We
continue to value SUNP at 24x FY13e EPS. Our new target at INR575 offers potential
return of 11% at current stock prices. Key risk is delay in US approvals, protonix related
damages and slippage in Taro’s core performance. As of July 29, 2011 closing price, the
stock is trading at 26x FY12e and 22x FY13e earning estimates.
Conference call highlights
1 In domestic formulation market, the company has maintained sales growth of c18 % excluding third
party business that has been discontinued. Sales from such operations in 1QFY11 were INR290mn
(INR630mn for FY11). Sun Pharma retains leadership positions in six key therapeutic classes:
psychiatry, neurology, cardiology, ophthalmology, orthopedics and gastroenterology. The company
plans to launch DPI product through SPARC in 2QFY12.
2 Taro has filed 20-F for 2010. Taro received 4 ANDA approvals in the quarter. Of the cumulative
ANDAs pending approval, Taro has 21 ANDAs and one NDA pending approval with FDA.
3 Total R&D expense was cINR885mn for 1QFY12 (5.4% of total sales). During the quarter, the
company has filed six ANDAs (4 by Sun Pharma and 2 by Taro). Cumulative ANDA filing with the
FDA currently stands at 383, of which 151 are pending approval (including 19 tentative approvals).
4 The first product launch from MSD deal for emerging market will take at least three years from now.
This deal is mainly focused on differentiated products.
5 Capex guidance for FY12 is cUSD100mn; net cash for the company is cUSD1bn
6 The company is looking for growth in large emerging markets through inorganic route preferring
sizable acquisitions over small acquisitions.
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