Sun Pharma’s revenue in Q2FY19 grew 4.3% yoy to Rs6,937.6cr. The growth in revenue was slowed due to the decline in its domestic and US base revenue. EBITDA in the quarter grew 11.3% yoy to Rs1,531.2cr vs. Rs1,375.6cr in Q2FY18. EBITDA margins expanded 139bps yoy stood at 22.1% in Q2FY19 vs. 20.7% in Q2FY18 and 22.2% in Q1FY19. The company, however, reported a net loss of Rs218.8cr in Q2FY19 vs. a net profit of Rs912.1cr in Q2FY18 and a net profit of Rs982.5cr in Q1FY19.
During the quarter, the company has reported a one-time exceptional expense of Rs1,214.4cr. This includes the $150.5mn settlement amount for an antitrust litigation for the drug Modafinil. Adjusting for this, PAT grew 9.2% yoy to Rs995.6cr. We had expected revenue/EBITDA/PAT of Rs7,633cr/Rs1,660cr/Rs1,015cr, respectively. Hence, the reported and adjusted numbers are below our expectations.
India sales declined 16% yoy to Rs1,860cr in Q2FY19. This was due to a planned one-time inventory reduction in the supply chain as well as a higher base of Q2FY18. Sun Pharma holds ~8.3% market share of the Indian pharmaceutical market. The revenue in India was 19.5% below our expectations in the quarter.
US sales grew 11% yoy to $342mn. Taro posted Q2FY19 sales of $159mn, down 6.4% yoy. Ex-Taro, Sun Pharma’s sales declined grew 32% yoy but was down 19% qoq. The US sales were 10% below our expectations.
Emerging markets sales were flat (yoy) at $195mn, while ROW sales declined 2% yoy to $108mn in Q2FY19.
R&D investments in Q2FY19 stood at Rs452cr (6.6% of sales) vs. Rs511cr (7.7% of sales) during Q2FY18.
Gross margins in Q2FY19 stood at 74.7% vs. 71.8% in Q2FY18 and 70.8% in Q1FY19. This is the best gross margin performance over the past eight quarters.
Employee cost grew 11.1% yoy, while other expenses grew 5% yoy.
The improvement in the EBITDA margin was largely due to the improvement in the gross margins. EBITDA margins reported at 22.1% were above our expectations of 21.7%.
Company expects to progress in speciality initiatives in the US market. Expect two more product launches over next two quarters.
Company has said that operating costs will go up due to the product ramp-up related expenses and higher R&D expenditure.
Halol plant has started to receive product approvals after the EIR.
Increase in the employee costs and other expenses in Q2FY19 reflects higher costs associated with the marketing and personal ramp up in speciality business.
Ilumya has received good response so far.
The ramp-up Odomzo is not as rapid as company expected.
The increase in the US business (ex-Taro) was due to the fall in Odomzo and ramp-up Yonsa.
The destocking in the India business is a one-time event and company has said that underlying business is in good shape. There will not be re-stocking in the India business and will grow in the lower single digits.
Intangibles have increased in Q2FY19 due to the product approvals and some milestone triggers.
Marketing and R&D expenses are expected rise over next few months due to the product launches.
Sun Pharma’s speciality product Yonsa may get impacted due to the Zytiga generic arrivals.
Sun Pharmaceuticals Industries Ltd ended at Rs561.70, down 27.85 points, or 4.72%, from its previous close of Rs589.55 on the BSE.
The scrip opened at Rs594.90 and touched a high and low of Rs594.90 and Rs556.05, respectively. A total of 99,70,154 (NSE+BSE) shares were traded on the counter. The stock traded above its 50-DMA.
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