Sun Pharma (Q1 FY14)

India Infoline News Service | Mumbai |

Sun Pharma again beats our estimates; grew 30.5% yoy and 13.5% qoq to Rs35bn vs. expectation of Rs32b

CMP Rs506, Target Rs560, Upside 10.7%
  • Sun Pharma again beats our estimates; grew 30.5% yoy and 13.5% qoq to Rs35bn vs. expectation of Rs32b
  • The net sales grew by 23% yoy; Adjusted for lower sales recorded in the domestic business in Q1 FY13
  • Domestic market adjusting for low base of last year grew healthy by 11% yoy to Rs8.5bn;reported growth of 44.4% yoy
  • US Formulation clocked in strong revenue growth of 32% yoy to Rs20.3bn; largely led by full integration of its acquired companies and better realsiation; dollar growth at 28% yoy
  • RoW grew by 23% yoy to Rs4.5bn; growth of 19% in dollar terms
  • Operating margins declined 200bps yoy and increased 297bps qoq to 441.3%; Margins are strong even after the integration of the acquired companies
  • On the reported basis, the company recorded a net loss of Rs12bn, on account of one-time charge of Rs25bn towards the settlement of the generic Protonix litigation in the US
  • We believe the growth momentum will continue with the strong franchise in domestic market along with the niche launches and integration of DUSA Pharma & URL will keep the thrust on going in the US market. We upgrade our rating to BUY with a revise target of Rs560
Result table
(Rs mn) Q1 FY14 Q1 FY13 % yoy Q4 FY13 % qoq
Operating Income 35,027 26,835 30.5 30,870 13.5
Inc/(dec) in stock (1,019) (852) 19.6 (491) 107.7
Consumption of Materials (5,061) (4,978) 1.7 (5,463) (7.4)
Purchase of Traded Goods (1,212) (897) 35.0 (323) 274.6
Employees' Cost (5,034) (3,512) 43.3 (4,394) 14.6
Other Expenditure (9,228) (5,878) 57.0 (8,427) 9.5
Operating profit 15,512 12,422 24.9 12,754 21.6
OPM (%) 44.3 46.29 (200) bps 41.32 297 bps
Depreciation (978) (801) 22.1 (887) 10.3
Interest income (219) (212) 3.2 (72) 206.0
Other income 748 (19) (4,059.3) 1,018 (26.5)
PBT 15,063 11,389 32.3 12,814 17.6
Tax (1,511) (1,924) (21.5) (1,773) (14.8)
Effective tax rate (%) 10.0 16.9 (686) bps 14 (381) bps
PAT (11,622) 9,465 (222.8) 11,041 (205.3)
Minority Interest & other Adj (1,139) 1,256 (190.7) 925 (223.2)
Exceptional Item (25,174) - - - -
Reported PAT (10,482) 8,210 (227.7) 10,116 (203.6)
Adj PAT 14,692 8,210 79.0 10,116 45.2
PAT margin (%) 41.9 30.59 1135 bps 0.3 4163 bps
Ann. EPS (Rs) 28.4 15.9 79.0 19.5 45.2
Source: Company, India Infoline Research

Sun Pharma again beats our estimates; grew 30.5% yoy and 13.5% qoq to Rs35bn vs. expectation of Rs32b
Revenue growth of 30.5% yoy and 13.5% qoq to Rs35bn was ~10% better than our estimates largely led by better than expected growth in domestic business and higher realisations. US Formulation clocked in strong revenue growth of 32% yoy to Rs20.3bn; largely led by full integration of its acquired companies and better realsiation. Domestic market adjusting for base of last year grew healthy by 11% yoy to Rs8.5bn. Formulation sales in rest of the world (ROW) markets outside of India and US accounted for Rs4.5bn in Q1 FY14 registering a growth of 23% in rupee terms and 19% in dollar terms . API business which is largely for captive purpose, also, continues to grow.  External sales of API grew by 13.5% qoq to Rs1.9bn in Q1 FY14. 

Revenue Break-up
Rsmn. Q1FY14 Q1FY13 % yoy Q4FY13 % qoq
India Formulations 8,486 5,877 44.4 7,797 8.8
US Formulations 20,314 15,411 31.8 17,879 13.6
ROW Formulations 4,508 3,666 23.0 3,937 14.5
Export Formulation 24,821 19,077 30.1 21,816 13.8
Total Formulations 33,308 24,954 33.5 29,614 12.5
Bulk 1,928 2,020 (4.5) 1,699 13.5
Others 34 18 - (130) (126.0)
Total Sales 35,270 26,992 30.7 31,183 13.1

US Formulation clocked in strong revenue growth of 32% yoy to Rs20.3bn; largely led by full integration of its acquired companies and better realsiation; dollar growth at 28% yoy
Sales in the US were US$364mn for Q1 FY14, up by 28%, and accounted for 57% of total sales. In Q1 FY13, there was a full consolidation of the DUSA and URL. In Q1 FY13, 1 ANDA was filed and 9 were approved. As on date the company has filled cumulatively 453 with the USFDA and received approval of 320. 0The above ANDA statistics exclude the discontinued/withdrawn products of URL.

Operating margins declined 200bps yoy and increased 297bps qoq to 44.3%; Margins are strong even after the integration of the acquired companies
Sun Pharma managed to maintain high operating margin even in this quarter at 44%. The margins are well above the industry level even after factoring weakness in the Tarro business. We believe even if we further factor in some more 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. The tax rate for Q1 FY14 has been on the lower side and the company now guides tax rate of 15% for FY14. As a result, adjusted net profit grew by 79% yoy to Rs14.6bn.
 

Cost analysis
As a % of net sales Q1FY14 Q1FY13 bps yoy Q4FY13 bps qoq
Raw material 11.5 15.4 (384) 16.1 (457)
Purchases 3.5 3.3 11 1.0 241
Personnel Costs 14.4 13.1 128 14.2 14
Other Expenditure 26.3 21.9 444 27.3 (95)
Total costs 55.7
 

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