Numero uno position
Sun Pharma’s (SPIL) results for Q4FY13 were better than our expectations. The company reported a growth of 32%YoY in revenues, 10bps in EBIDTA margin and 23%YoY in net profit. Sales growth in US formulation business was 77%YoY and in RoW it was 22%YoY. The results of DUSA and URL generic business have been consolidated from Q4FY13 and will contribute for the full year in FY14. SPIL has demerged its formulations business into a 100% subsidiary for better focus. The Protonix lawsuit hearing is scheduled in June’13. The management has given a guidance of 18-20% sales growth in FY14. We have a Buy rating for the scrip and revised target price of Rs1,258 from Rs892 (based on 26x Sept’14 EPS of Rs48.4).
Excellent sales growth: SPIL reported 32%YoY growth in revenues from Rs23.36bn to Rs30.87bn in Q4FY13. Domestic formulation revenues (25% of total) declined by 11%YoY from Rs8.77bn to Rs7.80bn due to additional sales in Q4FY12 and change in the treatment of sales returns. Its US formulation business (57% of total) grew by 77%YoY from Rs10.11bn to Rs17.88bn. The RoW formulation business (13% of revenues) grew by 22%YoY from Rs3.23bn to Rs3.94bn. SPIL’s API business (5% of total) grew by 11%YoY from Rs1.53bn to Rs1.70bn.
Margin improves: SPIL’s margin for Q4FY13 improved by 10bps from 41.2% to 41.3% due to the decline in material cost by 380bps from 21.0% to 17.2% of net sales due to higher sales in the US market. Personnel cost dropped by 70bps from 14.9% to 14.2% due to strong sales growth. Other expenses grew by 440bps from 22.9% to 27.3% due to additional expenses of DUSA and URL generic business.
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Sun Pharma’s (SPIL) results for Q4FY13 were better than our expectations. The company reported a growth of 32%YoY in revenues, 10bps in EBIDTA margin and 23%YoY in net profit. Sales growth in US formulation business was 77%YoY and in RoW it was 22%YoY. The results of DUSA and URL generic business have been consolidated from Q4FY13 and will contribute for the full year in FY14. SPIL has demerged its formulations business into a 100% subsidiary for better focus. The Protonix lawsuit hearing is scheduled in June’13. The management has given a guidance of 18-20% sales growth in FY14. We have a Buy rating for the scrip and revised target price of Rs1,258 from Rs892 (based on 26x Sept’14 EPS of Rs48.4).
Excellent sales growth: SPIL reported 32%YoY growth in revenues from Rs23.36bn to Rs30.87bn in Q4FY13. Domestic formulation revenues (25% of total) declined by 11%YoY from Rs8.77bn to Rs7.80bn due to additional sales in Q4FY12 and change in the treatment of sales returns. Its US formulation business (57% of total) grew by 77%YoY from Rs10.11bn to Rs17.88bn. The RoW formulation business (13% of revenues) grew by 22%YoY from Rs3.23bn to Rs3.94bn. SPIL’s API business (5% of total) grew by 11%YoY from Rs1.53bn to Rs1.70bn.
Margin improves: SPIL’s margin for Q4FY13 improved by 10bps from 41.2% to 41.3% due to the decline in material cost by 380bps from 21.0% to 17.2% of net sales due to higher sales in the US market. Personnel cost dropped by 70bps from 14.9% to 14.2% due to strong sales growth. Other expenses grew by 440bps from 22.9% to 27.3% due to additional expenses of DUSA and URL generic business.
Good growth for major products: As per IMS MAT-March’13 data, SPIL grew at 15.7% against industry growth of 10.1%. Of the nine major brands, eight grew at higher than industry growth rate. SPIL’s nine major brands contributed 19% to the company revenues. Levipil was the fastest growing brand at 46.6%. SPIL launched 25 new products in the domestic market in FY13. We expect these major brands to drive future growth in the domestic market.
No major impact from new pricing policy: SPIL is unlikely to get majorly impacted by the National Pharmaceutical Pricing Policy (NPPP).The management has indicated revenue loss of Rs400-500mn (1.7% of domestic revenues).
Strong product pipeline: SPIL has a strong product pipeline for the US market. Its cumulative ANDA filing stands at 449 of which 311 are approved. The company filed 22 ANDAs in FY13. SPIL has filed 239 DMFs of which 168 are approved. The acquired URL generic business has over 230 ANDAs. We expect this strong pipeline to deliver good growth in the US market.
Valuations: We expect SPIL to benefit from the good growth in the domestic, US and RoW markets. The strong product pipeline in the US will deliver consistent growth. At the CMP of Rs1018, the stock trades at 23.7x FY14E EPS of Rs43.0 and 18.9x FY15E EPS of Rs53.8. We have revised our FY14 and FY15 estimates upwards by 20% and 25% respectively. We have a Buy rating for the scrip with a revised target price of Rs1,258 (based on 26x Sept’14 EPS of Rs48.4) with an upside of 23.5% over the CMP.
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