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Key Takeaways
Guidance: 28-30% top-line growth in FY12
Sun Pharmaceutical Industries (SUNP) management reiterated its 28-30% top-line growth
guidance for FY12. The growth will be partly driven by the full-year consolidation of
Taro. We estimate that net of one-offs and Taro, implied growth guidance for core
revenue is 18-19%. Capex is estimated at INR4.5b, R&D expenses at 6% of sales and
management aims to file ~25 products with the US FDA.
Domestic formulations industry growth slowing
Growth in the domestic formulations industry has slowed over the past few months but
the management believes that long-term prospects are good. While the management
has not given any separate growth guidance for this business, we expect SUNP to
sustain its growth momentum. The business posted 17-18% CAGR over FY08-11 and
we expect SUNP to sustain this growth rate until FY13. Absence of contract manufacturing
revenue will temper FY12 growth.
Taro margins may not be sustained
While Taro reported strong EBITDA margins (~30%) over the past two quarters, the
management indicated that these margins were not sustainable due to a likely increase
in Taro's R&D expenses going forward and the possibility of increased competition for
some of Taro's products in the US.
Caraco: US FDA resolution likely to be gradual
While there is no fresh update on the US FDA resolution at Caraco, we believe that the
process will be gradual. We estimate part-recovery in Caraco's core US revenue from
FY13 based on the assumption that the US FDA issues will be resolved over the next few
quarters. SUNP recently raised its stake in Taro to 100%, which can incrementally help
in facilitating the resolution of US FDA issues.
Growth in emerging markets portfolio to be sustained
The management is confident of sustaining good growth in its emerging markets portfolio.
We estimate that SUNP's emerging markets will post 20% revenue CAGR over the next
two years, given its plans to increase penetration in key markets.
Valuation and view
Key drivers for future include: (1) a ramp-up in the US business and resolution of
Caraco's cGMP issues; (2) monetization of the Para-IV pipeline in the US and (3) launch
of controlled substances in the US. The stock is valued at 27x FY12E and 22.4x FY13E
core earnings. While we are positive about SUNP's business outlook, rich valuations
have tempered our bullishness. Maintain Neutral with a target price of INR524 (25x
FY13E EPS).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Key Takeaways
Guidance: 28-30% top-line growth in FY12
Sun Pharmaceutical Industries (SUNP) management reiterated its 28-30% top-line growth
guidance for FY12. The growth will be partly driven by the full-year consolidation of
Taro. We estimate that net of one-offs and Taro, implied growth guidance for core
revenue is 18-19%. Capex is estimated at INR4.5b, R&D expenses at 6% of sales and
management aims to file ~25 products with the US FDA.
Domestic formulations industry growth slowing
Growth in the domestic formulations industry has slowed over the past few months but
the management believes that long-term prospects are good. While the management
has not given any separate growth guidance for this business, we expect SUNP to
sustain its growth momentum. The business posted 17-18% CAGR over FY08-11 and
we expect SUNP to sustain this growth rate until FY13. Absence of contract manufacturing
revenue will temper FY12 growth.
Taro margins may not be sustained
While Taro reported strong EBITDA margins (~30%) over the past two quarters, the
management indicated that these margins were not sustainable due to a likely increase
in Taro's R&D expenses going forward and the possibility of increased competition for
some of Taro's products in the US.
Caraco: US FDA resolution likely to be gradual
While there is no fresh update on the US FDA resolution at Caraco, we believe that the
process will be gradual. We estimate part-recovery in Caraco's core US revenue from
FY13 based on the assumption that the US FDA issues will be resolved over the next few
quarters. SUNP recently raised its stake in Taro to 100%, which can incrementally help
in facilitating the resolution of US FDA issues.
Growth in emerging markets portfolio to be sustained
The management is confident of sustaining good growth in its emerging markets portfolio.
We estimate that SUNP's emerging markets will post 20% revenue CAGR over the next
two years, given its plans to increase penetration in key markets.
Valuation and view
Key drivers for future include: (1) a ramp-up in the US business and resolution of
Caraco's cGMP issues; (2) monetization of the Para-IV pipeline in the US and (3) launch
of controlled substances in the US. The stock is valued at 27x FY12E and 22.4x FY13E
core earnings. While we are positive about SUNP's business outlook, rich valuations
have tempered our bullishness. Maintain Neutral with a target price of INR524 (25x
FY13E EPS).
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