Sun Pharma (Q4 FY13)
India Infoline News Service | Mumbai |
Dip in margin along with the lower other income compared to last quarter resulted into lower than top line growth in PAT; reported PAT accelerated by 23.3% to Rs10.1bn
CMP Rs999, Target Rs1,064, Upside 6.5%
Source: Company, India Infoline Research
Revenue growth of 32.5% yoy and 7.7% qoq to Rs30.9bn was ~8% better than our estimate
Revenue growth of 32.5% yoy and 7.7% qoq to Rs30.9bn was ~8% better than our estimates largely led by full integration of its acquired companies. The growth in revenues was primarily led by higher than the expected growth in its US. US Formulation clocked in strong revenue growth of 76% yoy to Rs17.4bn; largely led by full integration of its acquired companies and better realsiation. Domestic market adjusting for base of last year grew healthy by 16.3% yoy to Rs7.7bn. Formulation sales in rest of the world (ROW) markets outside of India and US accounted for Rs3.9bn in Q4 FY13 registering a growth of 22% . API business which is largely for captive purpose, also, continues to grow. External sales of API grew by 11% yoy to Rs1.6bn in Q4 FY13.
Revenue Break-up
US Formulation clocked in strong revenue growth of 76% yoy to Rs17.4bn; largely led by full integration of its acquired companies and better realsiation
Sales in the US were US$330mn for Q4FY13, up by 63%, and accounted for 57% of total sales. In Q4 FY13, there was a full consolidation of the DUSA acquisition, while the URL acquisition was consolidated for 2 months. Taro, the US subsidiary, recorded sales of US$165mn in this quarter, up 14% yoy. The Net profit for Q4 was US$49mn which had post provision of US$55mn for settlements and loss contingencies. Both for the fourth quarter and FY13 volumes declined marginally. During the quarter, the URL acquisition achieved financial closure. The non-Colcrys (Colchicine, USP) generic assets of URL Pharma are now owned and managed by Sun (107 products represented by over 230 ANDAs). In February, the US FDA granted the final approval for Doxorubicin HCl Liposomal injection and company launched the product in current quarter. In Q4, 9 ANDAs were filled. As on March 31, the company has filled cumulatively 449 with the USFDA and received approval of 311, excluding 17 tentative approvals. The above ANDA statistics exclude the discontinued/withdrawn products of URL.
Operating margins declined 316bps qoq and increased 26bps qoq to 41.3%; Margins are strong even after the integration of the acquired companies
Sun Pharma managed to maintain high operating margin even in this quarter at 41.3%. Taro continue to indicate that the growth may not be sustainable as the higher growth is driven by identifying niche opportunity and some part of growth is attributable to price hike in the products; so with the competition creeping in the growth might not be sustainable. But, even with this comments, Taro continues to surprise. Even if we factor in some weakness at Taro, new niche launches and improving operating parameters at Dusa and URL will keep the margin at the high end of the sector average. In line with sales,  Dip in margin along with the lower other income compared to last quarter resulted into lower than top line growth in PAT; reported PAT accelerated by 23.3% to Rs10.1bn.
Cost analysis
- Revenue growth of 32.5% yoy and 7.7% qoq to Rs30.9bn was ~8% better than our estimate
- The growth was primarily on the back higher realistaion of rupee and full integration of Dusa and URL
- Domestic market adjusting for base of last year grew healthy by 16.3% yoy to Rs7.7bn
- US Formulation clocked in strong revenue growth of 76% yoy to Rs17.4bn; largely led by full integration of its acquired companies and better realsiation
- Operating margins declined 316bps qoq and increased 26bps qoq to 41.3%; Margins are strong even after the integration of the acquired companies
- Dip in margin along with the lower other income compared to last quarter resulted into lower than top line growth in PAT; reported PAT accelerated by 23.3% to Rs10.1bn
- Sun Pharma board recommended issue of bonus shares in the ratio of 1:1
- Company has guided for 18-20% growth for FY14. We believe going forward, approval of generic version of Doxil, niche launches and integration of DUSA Pharma & URL will keep the thrust on going in the US market. We remain positive on the company but on a limited upside potential, we downgrade our rating to MP with a revise target of Rs1,064.
| (Rs mn) | Q4 FY13 | Q4 FY12 | % yoy | Q3 FY13 | % qoq |
| Operating Income | 30,870 | 23,299 | 32.5 | 28,655 | 7.7 |
| Inc/(dec) in stock | (491) | (1,073) | (54.3) | 102 | (583.4) |
| Consumption of Materials | (5,463) | (4,960) | 10.1 | (4,251) | 28.5 |
| Purchase of Traded Goods | (323) | (1,022) | (68.3) | (1,241) | (73.9) |
| Employees' Cost | (4,394) | (3,480) | 26.3 | (3,871) | 13.5 |
| Other Expenditure | (8,427) | (5,346) | 57.6 | (6,445) | 30.7 |
| Operating profit | 12,754 | 9,565 | 33.3 | 12,745 | 0.1 |
| OPM (%) | 41.3 | 41.05 | 26 bps | 44.48 | (316) bps |
| Depreciation | (887) | (823) | 7.9 | (844) | 5.1 |
| Interest income | (72) | (112) | (36.2) | 123 | (158.1) |
| Other income | 1,018 | 2,181 | (53.3) | 678 | 50.1 |
| PBT | 12,814 | 10,811 | 18.5 | 12,703 | 0.9 |
| Tax | (1,773) | (1,768) | 0.3 | (2,369) | (25.1) |
| Effective tax rate (%) | 13.8 | 16.4 | (252) bps | 19 | (481) bps |
| PAT | 11,041 | 9,043 | 22.1 | 10,334 | 6.8 |
| Min Interest & other Adj | 925 | 841 | 10.0 | 1,521 | (39.2) |
| Reported PAT | 10,116 | 8,202 | 23.3 | 8,813 | 14.8 |
| PAT margin (%) | 32.8 | 35.20 | (243) bps | 30.8 | 201 bps |
| Ann. EPS (Rs) | 39.1 | 31.7 | 23.3 | 34.0 | 14.8 |
Revenue growth of 32.5% yoy and 7.7% qoq to Rs30.9bn was ~8% better than our estimate
Revenue growth of 32.5% yoy and 7.7% qoq to Rs30.9bn was ~8% better than our estimates largely led by full integration of its acquired companies. The growth in revenues was primarily led by higher than the expected growth in its US. US Formulation clocked in strong revenue growth of 76% yoy to Rs17.4bn; largely led by full integration of its acquired companies and better realsiation. Domestic market adjusting for base of last year grew healthy by 16.3% yoy to Rs7.7bn. Formulation sales in rest of the world (ROW) markets outside of India and US accounted for Rs3.9bn in Q4 FY13 registering a growth of 22% . API business which is largely for captive purpose, also, continues to grow. External sales of API grew by 11% yoy to Rs1.6bn in Q4 FY13.
Revenue Break-up
| Rsmn. | Q4FY13 | Q4FY12 | % yoy | Q3FY13 | % qoq |
| India Formulations | 7,797 | 8,767 | (11.1) | 7,885 | (1.1) |
| US Formulations | 17,879 | 10,106 | 76.9 | 14,946 | 19.6 |
| ROW Formulations | 3,937 | 3,226 | 22.1 | 3,942 | (0.1) |
| Export Formulation | 21,816 | 13,332 | 63.6 | 18,888 | 15.5 |
| Total Formulations | 29,614 | 22,099 | 34.0 | 26,773 | 10.6 |
| Bulk | 1,699 | 1,531 | 11.0 | 2,090 | (18.7) |
| Others | (130) | 8 | - | 59 | - |
| Total Sales | 31,183 | 23,638 | 31.9 | 28,922 | 7.8 |
US Formulation clocked in strong revenue growth of 76% yoy to Rs17.4bn; largely led by full integration of its acquired companies and better realsiation
Sales in the US were US$330mn for Q4FY13, up by 63%, and accounted for 57% of total sales. In Q4 FY13, there was a full consolidation of the DUSA acquisition, while the URL acquisition was consolidated for 2 months. Taro, the US subsidiary, recorded sales of US$165mn in this quarter, up 14% yoy. The Net profit for Q4 was US$49mn which had post provision of US$55mn for settlements and loss contingencies. Both for the fourth quarter and FY13 volumes declined marginally. During the quarter, the URL acquisition achieved financial closure. The non-Colcrys (Colchicine, USP) generic assets of URL Pharma are now owned and managed by Sun (107 products represented by over 230 ANDAs). In February, the US FDA granted the final approval for Doxorubicin HCl Liposomal injection and company launched the product in current quarter. In Q4, 9 ANDAs were filled. As on March 31, the company has filled cumulatively 449 with the USFDA and received approval of 311, excluding 17 tentative approvals. The above ANDA statistics exclude the discontinued/withdrawn products of URL.
Operating margins declined 316bps qoq and increased 26bps qoq to 41.3%; Margins are strong even after the integration of the acquired companies
Sun Pharma managed to maintain high operating margin even in this quarter at 41.3%. Taro continue to indicate that the growth may not be sustainable as the higher growth is driven by identifying niche opportunity and some part of growth is attributable to price hike in the products; so with the competition creeping in the growth might not be sustainable. But, even with this comments, Taro continues to surprise. Even if we factor in some weakness at Taro, new niche launches and improving operating parameters at Dusa and URL will keep the margin at the high end of the sector average. In line with sales,  Dip in margin along with the lower other income compared to last quarter resulted into lower than top line growth in PAT; reported PAT accelerated by 23.3% to Rs10.1bn.
Cost analysis
| As a % of net sales | Q4FY13 | Q4FY12 | bps yoy | Q3FY13 | bps qoq |
| Raw material | 16.1 | 16.7 | (58) | 15.2 | 92 |
| Purchases | 1.0 | 4.4 | (334) | 4.3 | (328) |
| Personnel Costs | 14.2 | 14.9 |
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