sunpharma-2qfy2013

7/30/2019 SunPharma-2QFY2013

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Please refer to important disclosures at the end of this report 1

Other income 176 (2) - 124 42

Gross profit 2,169 2,156 1 1,531 42

Operating profit 1,169 1,217 (4) 784 49

Source: Company, Angel Research

Sun Pharmaceutical Industries (Sun Pharma) reported a much higher-than-

expected 2QFY2013 performance. Its net sales reported a 40.3% yoy growth.The adjusted net profit grew by 19.0% yoy, driven by a higher-than-expected

improvement in sales and a higher-than-expected expansion in the OPM, which

in at 44.0% V/s our expectation of 40.2%. However, on account of the stock’s

rich valuation, we

For 2QFY2013, Sun Pharma reported net sales of

`2,657cr, up 40.3% yoy, mainly driven by exports. The company’s OPM

expanded to 44.0% in 2QFY2013 from 41.4% in 2QFY2012. Also, the gross

margin came higher at 81.6% from 80.8% in 2QFY2012. The net profit during the

quarter reported a 19.0% yoy growth to ` 711cr, which is higher than our expectations,

mainly on the back of a higher sales growth and an expansion in the OPM. The

current quarter numbers were impacted by a ` 584cr provision towards the

damages in respect of patent infringement litigation related to generic versions of

‘Protonix’.

: Sun Pharma is one of the largest and fastest growing

Indian pharmaceutical companies. Its management has revised its guidance to

20-22% top-line growth for FY2013. We expect Sun Pharma’s net sales to post a

23.9% CAGR to ` 12,313cr. However, on account of higher taxation, we expect a

flat EPS of ` 29.1 over FY2012–14E.

% chg 34.8 40.2 23.5 24.3

% chg 31.8 34.3 15.7 9.1

EBITDA margin (%) 34.4 39.9 42.6 42.6

P/E (x) 39.6 30.1 26.0 23.9

RoE (%) 20.5 22.1 20.7 19.1

RoCE (%) 19.0 24.6 25.7 27.0

P/BV (x) 7.6 5.9 5.0 4.2

EV/Sales (x) 12.3 8.6 6.2 4.7

EV/EBITDA (x) 35.7 21.5 14.5 11.0


CMP ` 695

Target Price -

Investment Period -

Stock Info

Sector

(5,229)

Bloomberg Code SUNP@IN

Shareholding Pattern (%)

Promoters 63.7

MF / Banks / Indian Fls 10.4

FII / NRIs / OCBs 20.6

Indian Public / Others 5.3

Abs. (%) 3m 1yr 3yr

Sensex 6.4 7.6 13.2

Sun Pharma 2.6 41.3 147.3

Pharmaceutical

Avg. Daily Volume

Market Cap ( ` cr)

Beta

52 Week High / Low

71,922

0.4

729/486

72,154

Net Debt ( ` cr)

Face Value ( ` )BSE Sensex

Nifty

Reuters Code

118,684

5,686

SUN.BO

+91 22 39357600 Ext: 6806

[email protected]

Performance Highlights

2QFY2013 Result Update | Pharmaceutical

November 9, 2012



Sun Pharma | 2QFY2013 Result Update

November 9, 2012 2

2QFY2013 performance (Consolidated)

Other income 175.9 (1.9) - 123.8 - 174.0 234.3 (25.7)

Operating profit 1,169 1,217 (4.0) 784 2,385 1,331

Interest 28 21 - 6 49 19 -

Depreciation 83 80 3.4 67 24.2 163 131 24.0

PBT 1,233 1,114 10.8 836 47.6 2,347 1,415

Provision for taxation 214 192 11.1 128 67.0 406 142 185.4

Minority interest(MI) 116 126 (7.5) 110 6 242 174 39

Extraordinary item loss/ (gain) 584 0 0 584 0


2QFY2013 – Actual V/s Angel estimates

Other income 176 118 48.9

Operating profit 1,169 950 23.0

Tax 214 198 8.2


Sun Pharma reported a 40.3% yoy

growth in its net sales to `2,657cr during 2QFY2013, above our expectation of

` 2,364cr.

The growth in the top-line was mainly driven by the inclusion of Taro’s financials

as well as strong growth in overall exports. The company’s domestic segment

reported a growth of 15.0% yoy during the quarter. Overall, exports sales of

finished dosage products stood at ` 1,703cr in 2QFY2013, accounting for 63% of

total sales.

Taro’s net sales for the quarter came in at US$161mn, registering a 16% yoy

growth. The net profit for the quarter was at US$65mn. The US business grew by

38%, accounting for 49% of the total sales. Lipodox sales continued in the current

quarter, but are expected to taper following the return of the branded product to

the market.




November 9, 2012 3

During the quarter, Caraco resumed manufacturing at its facilities in Michigan

after the USFDA determined Caraco to be in compliance with relevant paragraphs

of the Consent Decree. During the quarter, a provision has been made of Rs584cr

on a consolidated level towards potential damages in respect of patentinfringement litigation related to generic versions of Protonix.

On the regulatory front, during the quarter, abbreviated new drug application

(ANDA) for 4 products was filed. With this, ANDAs for 395 products cumulatively

have been filed by Sun Pharma and Taro with the USFDA. ANDAs for 3 products

received approvals in 2QFY2013, taking the total number of approvals to 256.

Currently, ANDAs for 136 products await USFDA approval, including 17 tentative

approvals.

Recently the company, Sun Pharmaceuticals announced that they have entered into

a definitive agreement under which Sun Pharma will acquire DUSA, a dermatology

company focused on developing and marketing its Levulan (aminolevulinic acid

HCl) photodynamic therapy platform. DUSA’s Levulan combination therapy is

approved by FDA for treatment of non-hyperkeratotic actinic keratoses or AKs of

the face or scalp. Additionally, DUSA’s BLU-U treatment has been approved by

FDA for the treatment of moderate inflammatory acne vulgaris and general

dermatological conditions. Levulan is manufactured by DUSA in its FDA approved

facility at Wilmington, MA.

The transaction has a total cash value of approximately $230 million. The

transaction values the acquired company at 4x and 19x its sales and net profits

respectively. The acquisition is a bit expensive given the size of the company.

However, the acquisition would result in enhancing Sun Pharma’s dermatology and US business. The acquisition can be easily funded, given the cash on the

balance sheet of the company and the debt free status of the company. However,

the acquisition would add around $50-60mn to the top-line, but in terms of net

profit, the contribution will be minimal.

On the regulatory front, during the quarter, ANDAs for 4 products were filed. With

this, ANDAs for 395 products cumulatively have been filed by Sun Pharma and

Taro with the USFDA. ANDAs for 3 products received approvals in 2QFY2013,

taking the total number of approvals to 256. Currently, ANDAs for 136 products

await USFDA approval, including 17 tentative approvals.




November 9, 2012 4

Sales trend

705 696

877

588

810

1,217

1,475 1,487

1,908 1,891

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2QFY2012 3QFY2012 4QFY2012 1QFY2013 2QFY2013

( `

c r )

Domestic Sales Export Sales


The company’s OPM expanded to 44.0% in

2QFY2013 from 41.4% in 2QFY2012. Also, the gross margin came in higher at

81.6% from 80.8% in 2QFY2012. Amongst key expenditure, the R&D and other

expenditure increased by 57.4% yoy and 30.8% yoy respectively.

OPM trend (%)

41.4

44.9

41.1

45.8

44.0

35.0

40.0

45.0

50.0


( % )


: For 2QFY2013, the company’s

adjusted net profit came in at ` 711cr, up 19.0% yoy. This was higher than the

estimated net profit of ` 665cr on account of higher-than-expected sales growth

and higher-than-expected OPM.




November 9, 2012 5

Net profit trend

598668

820 796

711

0

100

200

300

400

500

600

700

800

900


( `

c r )


Concall takeaways

For FY2013, the management has revised its revenue guidance of 15–20% to

20-22% on constant currency terms.

25 ANDAs to be filed in FY2013.

Sun Pharma’s overall tax rate is expected to increase from the current levels to

20% of PBT in FY2013.

The management has guided for a capex of ` 500cr for FY2013.

R&D expenses have been guided for ~7% of sales in FY2013 against 5.7% in

FY2012.




November 9, 2012 6

Investment arguments

: Sun Pharma’s US business posted a 33% CAGR over

FY2005–10, which contributed 30% to its total turnover in FY2010.

Sun Pharma, along with Caraco and Taro, now has 151 ANDAs pending USFDA

approval, which is one of the highest in the Indian pharma space.

Sun Pharma has filed around 30 ANDAs in each of the past few years.

The company indicated that it would file ~25 ANDAs in FY2013 as well. On the

Caraco front, the resolution of the USFDA issue is not clear. The company’s

remediation work plan to the USFDA on Caraco is ongoing.

: Sun Pharma’s domestic formulation business has grown at a

23% CAGR, ie above the industry’s average over FY2005–12. It contributed 36%

to the company’s total turnover in FY2012. The company has 3,000 MRs and its

field force productivity is among the highest at around ` 97lakh/MR per year, which

has resulted in high margins from the segment. The company has a market share

of around 4.6%, with exposure to psychiatry, neurology, CVS, diabetic and

gastroenterology segments. In FY2012, Sun Pharma launched 22 products in the

domestic market.

: Sun Pharma has one of the strongest balance sheets in the

sector, with cash of around ` 5,000cr. The management has indicated that it is

looking at inorganic growth and scouting for acquisitions, especially in the US and

the emerging markets.

: Sun Pharma is one of the largest and fastest growing

Indian pharmaceutical companies. The management has revised its guidance from15-20% top-line growth to 20-22% for FY2013. Further, the management expects

R&D expenses to be ~6-7% of net sales and capex at ` 500cr for FY2013.

We expect Sun Pharma’s net sales to post a 23.9% CAGR to ` 12,313cr.

However, on account of higher taxation, we expect a flat EPS of ` 29.1 over

FY2012–14E.

Key assumptions

Net sales growth (%) 23.5 24.3

Growth in employee expenses (%) 15.8 19.5

Operating margins (%) 42.6 42.6

Capex ( ` cr) 700 700





November 9, 2012 7

One-year forward PE band

-

100

200

300

400

500

600

700

800

A p r - 0 5

J u l - 0 5

O c t - 0 5

J a n - 0

6

A p r - 0 6

J u l - 0 6

O c t - 0 6

J a n - 0

7

A p r - 0 7

J u l - 0 7

O c t - 0 7

J a n - 0

8

A p r - 0 8

J u l - 0 8

O c t - 0 8

J a n - 0

9

A p r - 0 9

J u l - 0 9

O c t - 0 9

J a n - 1

0

A p r - 1 0

J u l - 1 0

O c t - 1 0

J a n - 1

1

A p r - 1 1

J u l - 1 1

O c t - 1 1

J a n - 1

2

A p r - 1 2

J u l - 1 2

O c t - 1 2

10 15x 20x 25x

25x

10x

20x

15x


Recommendation Summary

Alembic Pharma. Buy 59 91 55.4 6.5 0.7 4.3 14.6 29.4 29.9

Aurobindo Pharma Buy 103 156 51.2 8.2 0.9 6.4 61.1 10.4 16.4

Aventis* Neutral 2,207 - - 21.1 2.7 17.7 12.0 16.1 17.0

Cadila Healthcare Accumulate 874 953 9.0 19.0 2.6 13.5 20.5 20.2 26.8

Cipla Accumulate 350 399 14.0 17.5 2.8 12.6 18.4 16.8 16.6

Dr Reddy's Accumulate 1,646 1,859 12.9 17.7 2.6 12.3 2.3 15.1 20.8

Dishman Pharma Accumulate 86 92 6.5 7.6 1.0 5.6 26.6 8.9 10.0GSK Pharma* Neutral 2,105 - - 25.5 5.1 16.4 8.7 38.9 29.0

Indoco Remedies Buy 56 92 63.3 6.4 0.9 5.0 32.8 15.5 17.0

Ipca labs Buy 406 475 17.1 11.1 1.6 7.8 29.5 26.1 26.0

Lupin Accumulate 581 647 11.3 18.6 2.6 13.2 26.7 22.9 24.7

Orchid Chemicals Buy 107 178 65.8 4.8 0.8 4.7 27.8 11.5 7.9

Ranbaxy* Neutral 483 - - 16.2 1.8 11.2 44.8 15.8 28.9

Source: Company, Angel Research; Note: *December year ending

Sun Pharma is an international specialty pharma company, with a large presence

in the US and India, and a footprint across 40 other markets. In India and rest of

the world markets, the key chronic therapy areas for the company are cardiology,

psychiatry, neurology, gastroenterology, diabetology etc. The company is a market

leader in specialty therapy areas in India. In India, the company has emerged as a

leading pharma company where it is the sixth largest by prescription sales. Also in

the US, a key geography, the company has expanded significantly through both in-

organic and organic routes.




November 9, 2012 8

Profit & Loss (Consolidated)

Less: Excise duty

Other operating income

% chg 27.3 (0.8) 34.8 40.2 23.5 24.3

Total expenditure 2,408 2,644 3,754 4,816 5,682 7,066

Net raw materials 856 1,098 1,461 1,640 1,931 2,401

Other mfg costs 202 221 314 350 433 538

Personnel 340 401 800 1,188 1,370 1,704

Other 1,011 925 1,494 1,639 1,949 2,423

% chg 20.2 (26.9) 44.3 62.8 31.7 24.3

(% of Net Sales) 43.6 34.0 34.4 39.9 42.6 42.6

Depreciation & amort. 123 153 204 291 462 518

% chg 19.7 (30.5) 45.7 65.2 29.0 25.9

(% of Net Sales) 40.7 30.2 30.8 36.3 37.9 38.4

Interest & other charges 28

Other income 205 205 273 472 272 272

(% of PBT) 10.5 14.5 13.4 14.1 6.7 6.1

Share in profit of Asso. - - - - -

% chg 21.9 (27.4) 43.9 64.8 20.2 10.5

Extraordinary expense/(inc.) (24.4) (1.2) (38.9) (200) -

Tax 71.2 67.9 128.4 382.6 806.8 891.4

(% of PBT) 3.7 4.8 6.3 11.4 20.0 20.0

Add: Share of earnings of asso. - - - - -

Less: Minority interest (MI) 60 (4) 91 385 464 550

Prior period items - - - - -

% chg 21.6 (24.8) 31.8 34.3 15.7 9.1

(% of Net Sales) 42.6 33.7 31.7 32.3 27.9 24.5

% chg 22.3 (25.7) 34.4 31.5 15.7 9.1




November 9, 2012 9

Balance Sheet (Consolidated)

Equity share capital 104 104 104 104 104 104Preference capital - - - - -

Reserves & surplus 6,941 7,725 9,380 12,063 14,402 16,994

Total loans 179 171 426 321 321 321

Deferred tax liability (68) (89) (365) (520) (520) (417)

Other Long Term Liabilities 7 9

Long Term Provisions 13 139

Gross block 2,148 2,334 4,547 5,427 6,127 6,827

Less: Acc. depreciation 685 801 2,026 2,497 2,959 3,478

Capital work-in-progress 157 145 235 345 345 345

Goodwill 325 406 772 1,022 1,972 1,972

Long term long & adv. 379 534 658 819

Current assets 4,268 3,712 5,736 8,534 11,076 14,727

Cash 1,669 607 2,205 3,367 4,696 6,794

Loans & advances 742 856 910 1,137 1,403 1,745

Other 1,857 2,249 2,651 4,031 4,977 6,188

Current liabilities 720 758 1,463 2,301 2,841 3,532

Others - - - - - -




November 9, 2012 10

Cash Flow Statement (Consolidated)

Profit before tax 1,949 1,415 2,036 3,355 4,034 4,457

Depreciation 123 153 204 291 462 518(Inc)/Dec in working capital 3 (467) (131) (768) (673) (862)

Direct taxes paid 169 162 87 466 807 891

(Inc.)/Dec.in Fixed Assets (640) (174) (2,304) (989) (700) (700)

(Inc.)/Dec. in Investments (1,103) (1,207) 837 17 - -

Other income - - - - - -

Issue of Equity - - - - - -

Inc./(Dec.) in loans (35) 8 (254) 105 - -

Dividend Paid (Incl. Tax) (242) (333) (344) (424) (424) (424)

Others 545 (294) 1,640 41 (564) -

Inc./(Dec.) in Cash 430 (1,062) 1,597 1,163 1,329 2,098




November 9, 2012 11

Key Ratios

P/E (on FDEPS) 39.6 53.2 39.6 30.1 26.0 23.9P/CEPS 37.0 47.8 35.6 25.0 22.3 20.4

P/BV 10.2 9.2 7.6 5.9 5.0 4.2

Dividend yield (%) 2.0 2.0 0.5 0.6 0.6 0.6

EV/Sales 16.5 17.8 12.3 8.6 6.2 4.7

EV/EBITDA 37.8 52.4 35.7 21.5 14.5 11.0

EV / Total Assets 9.6 8.8 6.7 5.2 3.8 3.0

EPS (Basic) 17.6 13.0 17.5 23.1 26.7 29.1

EPS (fully diluted) 17.6 13.0 17.5 23.1 26.7 29.1

Cash EPS 18.7 14.5 19.5 27.8 31.1 34.1

DPS 13.8 13.8 3.5 4.3 4.3 4.3

Book Value 68.0 75.6 91.6 117.5 140.1 165.1

EBIT margin 40.7 30.2 30.8 36.3 37.9 38.4

Tax retention ratio 96.3 95.2 93.7 88.6 80.0 80.0

Asset turnover (x) 0.9 0.6 0.7 0.9 0.9 1.0

ROIC (Post-tax) 34.3 18.5 21.0 28.5 28.4 32.2

Cost of Debt (Post Tax) 0.0 0.0 0.0 6.7 0.0 0.0

Leverage (x) (0.2) (0.1) (0.1) (0.2) (0.3) (0.3)

Operating ROE 26.9 16.0 18.5 23.7 20.6 21.2

ROCE (Pre-tax) 27.4 15.7 19.0 24.6 25.7 27.0

Angel ROIC (Pre-tax) 38.5 19.9 24.9 37.0 43.0 50.1

ROE 29.8 18.1 20.5 22.1 20.7 19.1

Asset Turnover (Gross Block) 2.3 1.9 1.7 1.6 1.7 1.9

Inventory / Sales (days) 75 88 81 81 82 87

Receivables (days) 98 88 75 69 73 79

Payables (days) 37 34 29 105 102 102

WC cycle (ex-cash) (days) 168 182 141 112 118 118

Net debt to equity (0.2) (0.1) (0.2) (0.3) (0.3) (0.4)

Net debt to EBITDA (0.8) (0.3) (0.9) (1.0) (1.0) (1.2)

Interest Coverage (EBIT/Int.) - - - - - -




November 9 2012 12

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

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Disclosure of Interest Statement Sun Pharma

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to 15%) Sell (< -15%)

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