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UBS Investment Research
Sun Pharma
F airly valued, reduce to Sell
�� Event: Higher competition in Taxotere generic
We reduce our FY12/13 Taxotere generic sales from US$100mn/US$80mn to
US$61mn/US$46mn respectively. Please refer to our “Global IO – Taxotere
Market” published today for more details. As a result, we cut our FY12 sales
growth from 33%YoY to 29%YoY which is inline with co. guidance of 28%-30%.
Taxotere now contributes Rs 1.68/1.24 or 8%/5% of our FY12/13 EPS estimates.
�� Impact: Reducing FY12/13 EPS
We therefore reduce our FY12/13 EPS by 5%/4%. We however remain 10%/1%
ahead of consensus EPS for FY12/13. We believe consensus estimates currently do
not factor in Prandin exclusivity for FY12 (4% of FY12 EPS). We also expect
further expansion in Taro EBITDA margins from 30% in FY11 to 40% by FY13.
�� Action: Downgrade to Sell, Guidance factored in
We believe the stock is fairly valued at 22x FY13E earnings. We believe given
higher competition in onco-injectibles products like Taxotere, Gemzar etc it will be
tough for Sun to significantly exceed its guidance. The stock trades at 25%
premium to peers. We believe the strong growth outlook is fully factored in.
�� Valuation: Fairly valued@22x FY13 PE, Reduce PT to Rs 515
We derive our price target using DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool with a WACC of 11%.
Implied PE at our target price is 21.6xFY13E which is significantly above the
historical average of 17x 1yr forward earnings
Sun Pharmaceuticals Industries Limited
Sun Pharmaceuticals Industries (Sun Pharma) is the sixth largest pharmaceutical
company in the India. It has a presence in chronic segments such as cardiology,
diabetology, and the central nervous system. In FY10, it derived 46% of sales
from Indian finished dosages, 28% from US finished dosages, 12% from rest of
the world finished dosages and 14% from global API sales. The company
distributes its products in the US through US-listed subsidiary, Caraco
Pharmaceuticals. Sun acquired a majority stake in US-listed Taro Pharma in
September 2010. The founders, the Shanghvi family, own 64% of Sun Pharma.
Statement of Risk
We believe general risks include FDA approval, timing of approvals,
competition from rival drug therapies, litigation (including the appeal process),
accounting/disclosure, and product pricing from generic competition. Pricing
pressure in the US market remains high.
Sun Pharma is increasing its focus on the US business. Risks relating to the
generic pharma sector in US become increasingly applicable now. Continued
rupee appreciation is likely to put further pressure on operating margins going
forward.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
UBS Investment Research
Sun Pharma
F airly valued, reduce to Sell
�� Event: Higher competition in Taxotere generic
We reduce our FY12/13 Taxotere generic sales from US$100mn/US$80mn to
US$61mn/US$46mn respectively. Please refer to our “Global IO – Taxotere
Market” published today for more details. As a result, we cut our FY12 sales
growth from 33%YoY to 29%YoY which is inline with co. guidance of 28%-30%.
Taxotere now contributes Rs 1.68/1.24 or 8%/5% of our FY12/13 EPS estimates.
�� Impact: Reducing FY12/13 EPS
We therefore reduce our FY12/13 EPS by 5%/4%. We however remain 10%/1%
ahead of consensus EPS for FY12/13. We believe consensus estimates currently do
not factor in Prandin exclusivity for FY12 (4% of FY12 EPS). We also expect
further expansion in Taro EBITDA margins from 30% in FY11 to 40% by FY13.
�� Action: Downgrade to Sell, Guidance factored in
We believe the stock is fairly valued at 22x FY13E earnings. We believe given
higher competition in onco-injectibles products like Taxotere, Gemzar etc it will be
tough for Sun to significantly exceed its guidance. The stock trades at 25%
premium to peers. We believe the strong growth outlook is fully factored in.
�� Valuation: Fairly valued@22x FY13 PE, Reduce PT to Rs 515
We derive our price target using DCF-based methodology and explicitly forecast
long-term valuation drivers using UBS’s VCAM tool with a WACC of 11%.
Implied PE at our target price is 21.6xFY13E which is significantly above the
historical average of 17x 1yr forward earnings
Sun Pharmaceuticals Industries Limited
Sun Pharmaceuticals Industries (Sun Pharma) is the sixth largest pharmaceutical
company in the India. It has a presence in chronic segments such as cardiology,
diabetology, and the central nervous system. In FY10, it derived 46% of sales
from Indian finished dosages, 28% from US finished dosages, 12% from rest of
the world finished dosages and 14% from global API sales. The company
distributes its products in the US through US-listed subsidiary, Caraco
Pharmaceuticals. Sun acquired a majority stake in US-listed Taro Pharma in
September 2010. The founders, the Shanghvi family, own 64% of Sun Pharma.
Statement of Risk
We believe general risks include FDA approval, timing of approvals,
competition from rival drug therapies, litigation (including the appeal process),
accounting/disclosure, and product pricing from generic competition. Pricing
pressure in the US market remains high.
Sun Pharma is increasing its focus on the US business. Risks relating to the
generic pharma sector in US become increasingly applicable now. Continued
rupee appreciation is likely to put further pressure on operating margins going
forward.
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