Sun Pharmaceuticals

Sun Pharmaceuticals posted the strong growth in top line and bottom-line for the quarter ended September 2011, on the back of improved performance across the business coupled with robust performance from the Taro business. However, the results are not strictly comparable as the corresponding previous period includes non-recurring sales and Taro financials for the only 10 days.

The Company registered robust 42% growth in net sales to Rs 1894.60 crore for the quarter ended September 2011 partly aided by the currency movements. The US and RoW formulation business witnessed robust 77% and 85% growth to Rs 799.08 crore and Rs 256.72 crore respectively. The domestic formulation business grew by 15% to Rs 704.6 crore for the same period. However, excluding third party manufacturing domestic formulation business underlying growth was 18% during the quarter.

At Operating level, the margins expanded by sharp 630 basis points to 41.4% resulting robust 68% growth in operating profit to Rs 784.04 crore. However, the higher tax provision coupled with the higher minority interest during the quarter restricted the growth in net profit to 19% to Rs 597.74 crore.

Moreover, Taro net profit surged by 218% to Rs USD 59 million for the quarter ended September 2011, on the back robust 34% growth in Net sales to USD138 million. The performance was aided by the USD 16 million forex gain. Further, it insisted that same performance is not sustainable as the increase in R&D spends going forward.

Interestingly, It's manufacturing facility located at Cranbury, New Jersey (US) has resolved earlier issues with the US FDA after a June 2011 re-inspection of its facility. Now, the facility has acceptable regulatory status, as the issues noted in the August 25, 2010 warning letter are resolved. Further, Remediation efforts at the Caraco facility in Detroit are also ongoing.

During the quarter, it has filed 5 ANDAs (4 with the Sun Pharma and 1 with Taro) taking the cumulative filings to 388 products as on 30^th September 2011. Further, it has received approval for the 6 ANDAs taking the total number of approvals to 238. It expects to await for the 150 products approvals including 18 tentative approvals.

Consolidated Quarterly performance:

Net sales grew by robust 42% to Rs 1894.60 crore for the quarter-ended September 2011, on the back of growth across the business. Also at Operating level, margins expanded by sharp 630 basis points to 41.4% on the back of fall in consumption cost by 160 basis points and other expenses by 300 basis points as percentage to sales and net of stock adjustments despite the rise in staff cost by 220 basis points. This led to robust 68% to Rs 784.04 crore. During the quarter, other income grew by 38% to Rs 76.54 crore includes the forex gain/loss. Also, interest income grew by 13% to Rs 41.72 crore.

However, the steep rise in the effective tax rate by whopping 1210 basis points to 15.3% coupled with the high minority interest Rs 109.70 crore (Rs 3.37 crore in the corresponding previous period) has restricted the growth in net profit to 19% to Rs 597.74 crore.

Revenue Breakup:

Revenues from the formulation business grew by robust 47% to Rs 1760.4 crore for the quarter ended September 2011, contributing 92% to the total sales. Further, revenues from the API business grew by 8% to Rs 160.31 crore.

Indian Formulation Business:

Revenues from the branded prescription formulations in India grew by 15% to Rs 704.6 crore for the quarter ended September 2011 contributing 37% to total sales. Excluding third party manufacturing business (discontinued) underlying growth was 18% during the quarter. Further, It has launched 10 key products during the quarter taking the total to 17 for the first half.

US and RoW Formulation Business:

Revenues from the US formulation business grew by robust 77% to Rs 799.08 crore for the quarter ended September 2011, constituting 42% to the total sales. Also, RoW formulation sales (13% to the total sales) witnessed sharp 85% rise to Rs 256.72 crore.

Moreover, Taro reported 218% growth in net profit to Rs USD 59 million for the quarter ended September 2011, on the back strong 34% growth in Net sales to USD138 million. This was aided by USD 16 million forex gain during the quarter.

Consolidated Half-yearly performance:

Net sales higher by 31% to Rs 3530.32 crore for the half-year ended September 2011. However, OPM fell by 250 basis points to 37.7% led to 23% growth in operating profit to Rs 1331.48 crore. Moreover, the sharp 203% rise in other income to Rs 141.85 crore led to 30% growth in PBDIT to Rs 1473.33 crore. Further, with the 28% growth in interest income to Rs 73.27 crore and sharp 74% rise in depreciation, PBT grew by 27% to Rs 1415.12 crore. However, the steep rise in effective tax rate by 760 basis points to 10.1% coupled with higher minority interest Rs 174.01 crore (compared to Rs 16.68 crore in the corresponding previous period), net profit grew by mere 3% to Rs 1098.74 crore.

Other information:

• The scrip is hovering at Rs 508.10 at BSE, India on 14^th November 2011.
• During the quarter, it has lost the patent litigation for generic Eloxatin to the Sanofi Aventis. Earlier, Sun Pharma had been blocked from selling the colorectal generic drug through a lawsuit by the innovator Company.

Management Comments:

According to Dilip Shanghvi, Chairman and Managing Director, Performance delivered this quarter and in the first half, though partly aided by the exchange rate movement, is a clear reflection of the steady effort made across all parts of our business towards long term sustainable growth and profitability. India business maintains the growth in prescription share with our key customers. In the US and Other international markets, work continues on enriching the product pipeline and on strengthening the quality and regulatory process

 Sun Pharmaceuticals - Consolidated Financial Results

Sun Pharmaceuticals: Consolidated Revenue Break-up