KEY DATA The going gets betterbsmedia.business-standard.com/_media/bs/data/... · SUN PHARMACEUTICALS Edelweiss Securities Limited 4 Edelweiss Research is also available on , Bloomberg

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited

KEY DATA

Rating BUY Sector relative Neutral Price (INR) 774 12 month price target (INR) 950 Market cap (INR bn/USD bn) 1,857/25.0 Free float/Foreign ownership (%) 45.5/11.7

What’s Changed Target Price

Rating/Risk Rating

QUICK TAKE

The going gets better

Sun Pharma’s (SUNP) Q1FY22 revenue/EBITDA/PAT beat consensus estimates by 11%/30%/40% as all businesses performed better than expectations as covid tailwinds was backed by structural recovery.

We upgrade SUNP to ‘BUY’ as: i) Ilumya outperformance and Cequa’s strong recovery to help mitigate Absorica loss; b) Winlevi boost to

derma portfolio to monetize Absorica salesforce; c) gRevlimid launch in FY23, broad-based India growth, Winlevi uptick and specialty acceleration to translate into 30%+ margin in FY24. We raise FY23E EPS by 27% due to core business improvement, gRevlimid and Winlevi. Raise multiple to 28x on consolidated EPS to account for near-term specialty losses that yields revised SOTP-based TP of INR950.

FINANCIALS (INR mn)

Year to March FY21A FY22E FY23E FY24E

Revenue 3,34,981 3,81,210 4,27,944 4,87,705

EBITDA 84,833 1,01,817 1,25,056 1,57,895

Adjusted profit 59,316 67,587 87,053 1,13,140

Diluted EPS (INR) 24.7 28.2 36.3 47.2

EPS growth (%) 47.3 13.9 28.8 30.0

RoAE (%) 6.4 13.8 15.9 18.2

P/E (x) 31.3 27.5 21.3 16.4

EV/EBITDA (x) 21.2 17.1 13.6 10.1

Dividend yield (%) 0.8 0.9 1.2 1.5

PRICE PERFORMANCE

Q1FY22 takeaways: Strong all round performance

11% top-line beat as all businesses exceeded expectations. US at USD380mn; best

performance in nine quarters driven by Ilumya that mitigated Absorica generics

impact. Ilumya doubled YoY as per secondary data. India, ex-covid, grew in double-

digits. Gross margin declined slightly due to Absorica genericization, but lower

employee costs and opex control ensured EBITDA margin beat that stood at 28.4%.

Unimpeded growth ahead as specialty builds confidence

Barring Absorica genericisation that should trough out in the next couple of quarters,

SUNP is poised for consistent growth in the next 4-5 years as its specialty portfolio

(Exhibit 3) led by Ilumya is on track to clock 20% CAGR; Eli Lilly scrapping mirikizumab

lessens potential competition. While we acknowledge that Winlevi may face

commercialization hurdles, the throughput is likely to be very high as no new

investments are to be made. Cequa has become the fastest growing molecule and

we expect strong growth till FY23 and eventual plateauing as Restasis generics hit

the market. gRevlimid launch in H2FY23 should provide comfort to US base business.

Recovery in the ex-Taro US business, steady EMs and RoW growth, solid domestic

chronic business and visible cost control are likely to provide comfort to base

business.

Explore:

Outlook and valuations: Higher revenue visibility; upgrade to ‘BUY’

We raise FY22/23E EPS by 11%/27% to factor gRevlimid and Winlevi in our forecasts

and margin expansion as specialty ramps up. Our target multiple on Dec 2022E EPS

is 28x (from 25x) as specialty’s best economics are likely to be seen only in FY25/26.

Raise TP to INR950 (fromINR675) based on 28x Dec 2022E and INR20 from gRevlimid.

Financials Year to March Q1FY22 Q1FY21 % Change Q4FY21 % Change

Net Revenue 97,187 75,853 28.1 85,230 14.0

EBITDA 27,412 17,644 55.4 20,592 33.1

Adjusted Profit 19,792 11,460 72.7 13,431 47.4

Diluted EPS (INR) 8.2 4.8 72.7 5.6 47.4

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,600

43,200

46,800

50,400

54,000

450

515

580

645

710

775

Jul-20 Oct-20 Jan-21 Apr-21

SUNP IN Equity Sensex

India Equity Research Pharmaceuticals July 30, 2021

SUN PHARMACEUTICALS RESULT UPDATE

Kunal Randeria Aashita Jain +91 (22) 6620 3040 +91 (22) 6623 3463 [email protected] [email protected]

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SUN PHARMACEUTICALS

Edelweiss Securities Limited

2 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset

Financial Statements

Income Statement (INR mn) Year to March FY21A FY22E FY23E FY24E

Total operating income 3,34,981 3,81,210 4,27,944 4,87,705

Gross profit 2,48,081 2,80,840 3,18,004 3,65,693

Employee costs 68,622 72,397 77,102 82,114

R&D cost 21,028 24,779 26,533 28,775

Other expenses 73,597 81,847 89,314 96,909

EBITDA 84,833 1,01,817 1,25,056 1,57,895

Depreciation 20,800 21,352 21,902 22,452

Less: Interest expense 1,414 1,203 991 780

Add: Other income 8,355 6,034 7,187 8,295

Profit before tax 70,975 85,296 1,09,349 1,42,958

Prov for tax 5,147 12,709 17,496 25,018

Less: Exceptional item (42,825) 0 0 0

Reported profit 29,194 67,587 87,053 1,13,140

Adjusted profit 59,316 67,587 87,053 1,13,140

Diluted shares o/s 2,399 2,399 2,399 2,399

Adjusted diluted EPS 24.7 28.2 36.3 47.2

DPS (INR) 6.5 7.0 9.1 11.8

Tax rate (%) 7.3 14.9 16.0 17.5

Important Ratios (%) Year to March FY21A FY22E FY23E FY24E

Gross Margin (%) 74.1 73.7 74.3 75.0

R&D as a % of sales 6.3 6.5 6.2 5.9

Net Debt/EBITDA (0.7) (1.1) (1.3) (1.6)

EBITDA margin (%) 25.3 26.7 29.2 32.4

Net profit margin (%) 17.7 17.7 20.3 23.2

Revenue growth (% YoY) 2.0 13.8 12.3 14.0

EBITDA growth (% YoY) 21.4 20.0 22.8 26.3

Adj. profit growth (%) 47.3 13.9 28.8 30.0

Assumptions (%) Year to March FY21A FY22E FY23E FY24E

GDP (YoY %) (6.0) 7.0 6.0 0

Repo rate (%) 3.5 3.5 4.0 0

USD/INR (average) 74.2 73.0 72.0 0

India growth (%) 6.5 18.7 5.6 10.5

Exports growth (%) 0.6 12.5 16.2 16.2

US sales (USD mn) 1,360.0 1,556.0 1,831.3 2,277.7

API sales (USD mn) 263.2 293.9 327.8 360.5

Capex (USD mn) 144.6 235.6 138.9 0

Valuation Metrics Year to March FY21A FY22E FY23E FY24E

Diluted P/E (x) 31.3 27.5 21.3 16.4

Price/BV (x) 4.0 3.6 3.2 2.8

EV/EBITDA (x) 21.2 17.1 13.6 10.1

Dividend yield (%) 0.8 0.9 1.2 1.5

Source: Company and Edelweiss estimates

Balance Sheet (INR mn) Year to March FY21A FY22E FY23E FY24E

Share capital 2,399 2,399 2,399 2,399

Reserves 4,62,229 5,12,919 5,78,209 6,63,064

Shareholders funds 4,64,628 5,15,318 5,80,608 6,65,463

Minority interest 30,171 35,171 39,971 44,771

Borrowings 33,430 28,430 23,430 18,430

Trade payables 39,737 59,259 49,175 71,166

Other liabs & prov 62,151 62,151 62,151 62,151

Total liabilities 6,41,103 7,11,315 7,66,321 8,72,968

Net block 1,54,855 1,48,503 1,36,601 1,24,148

Intangible assets 62,876 62,876 62,876 62,876

Capital WIP 15,668 15,668 15,668 15,668

Total fixed assets 2,33,400 2,27,047 2,15,145 2,02,693

Non current inv 64,824 64,824 64,824 64,824

Cash/cash equivalent 95,756 1,41,545 1,81,106 2,73,297

Sundry debtors 90,614 1,14,885 1,28,969 1,46,980

Loans & advances 28,081 28,081 28,081 28,081

Other assets 89,970 94,272 1,07,535 1,16,432

Total assets 6,41,103 7,11,315 7,66,321 8,72,968

Free Cash Flow (INR mn) Year to March FY21A FY22E FY23E FY24E

Reported profit 17,964 67,587 87,053 1,13,140

Add: Depreciation 18,099 21,352 21,902 22,452

Interest (net of tax) 0 0 0 0

Others 0 0 0 0

Less: Changes in WC 25,641 (9,051) (37,432) (4,916)

Operating cash flow 61,704 79,888 71,523 1,30,677

Less: Capex (10,730) (17,201) (10,000) (10,000)

Free cash flow 50,974 62,687 61,523 1,20,677

Key Ratios Year to March FY21A FY22E FY23E FY24E

RoE (%) 6.4 13.8 15.9 18.2

RoCE (%) 13.2 15.6 18.0 20.9

Inventory days 354 335 335 335

Receivable days 101 98 104 103

Payable days 169 180 180 180

Working cap (% sales) 21.4 21.2 27.6 25.2

Gross debt/equity (x) 0.1 0.1 0 0

Net debt/equity (x) (0.1) (0.2) (0.3) (0.4)

Interest coverage (x) 45.3 66.9 104.1 173.7

Valuation Drivers Year to March FY21A FY22E FY23E FY24E

EPS growth (%) 47.3 13.9 28.8 30.0

RoE (%) 6.4 13.8 15.9 18.2

EBITDA growth (%) 21.4 20.0 22.8 26.3

Payout ratio (%) 53.4 25.0 25.0 25.0


SUN PHARMACEUTICALS

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset 3

Q1FY22 conference call: Key highlights

Global Specialty

USD148mn across all markets (USD81mn in Q1FY21). Recorded growth despite

subsequent reduction in Absorica sales. Still facing issue with reopening of

clinics. Absorica AG included in US generics.

Ilumya sales grew both YoY and QoQ. Cequa grew QoQ. Expect to clock double

digit growth in FY22

Japan- in process of getting entry into hospitals. Offtake is little slower. Australia-

continue to grow product QoQ.

Ilumya market share is 8%. IL-23 is driving market.

Ilumya- commercial segment is bigger than medicare.

Specialty R&D accounted for 26% of total R&D.

R&D molecules- Ilumya – Phase 3 clinical psoriatic arthritis- currently recruiting

patients. SCD 044 undergoing Phase 2 trial for atopic dermatitis and moderate

to severe plaque psoriasis. MM-II undergoing phase 2 trials for knee

osteoarthritis. GLP-1 agonist phase 1 trial for diabetes.

Gaining market share in Cequa. This is the second full quarter of DTC.

Expect to be EBITDA positive in FY23.

Winlevi- Several investments have to be made to familiarize doctors with the

product. Very limited option for acne with the doctors. There is always play for

new mechanism of action.

Levulan sales have normalized but not there where it should be in non-covid

scenario.

Financials

Other expenses were higher on account of higher marketing and R&D. Current

quarter expenses are restrained.

Expect expenses to increase as markets open up completely.

R&D –guidance 7-8% of sales.

India

8-10% of sales for the quarter pertain to covid.

Base business grew in double digits.

Chronic portfolio is growing well. Semi-chronic has done exceptionally well.

Acute is in-line.

SUN PHARMACEUTICALS



Sun Pharma FY23 EPS bridge

Source: Edelweiss Research

Sun Pharma key financial metric breakdown

FY22 FY23 FY24

Revenue gRevlimid 0 7,638 25,272

Core biz 3,78,210 4,17,306 4,59,433

EBITDA gRevlimid 0 7,256 22,745

Core biz 1,01,817 1,17,800 1,35,151

PAT gRevlimid 0 5,805 18,196

Core biz 67,587 81,248 94,945

EPS gRevlimid 2.4 7.6

Core biz 28.2 33.9 39.6


28.6

36.3

2.4 1.1

4.2

0

8

16

24

32

40

FY23 EPS(previous)

gRevlimid Winlevi Core business FY23 EPS (New)


SUN PHARMACEUTICALS


Specialty uptick progressing well

As seen in the chart below, Sun’s specialty products are likely to be key growth

drivers in the next 3 years. While Absorica is likely to trough out in the next couple

of quarters, Ilumya’s growth has been best-in-class in the last couple of quarters and

Cequa is also the fastest growing molecule in its class

Summary of US sales

FY22 FY23 FY24

Sun Base (incl. gRevlimid) 613 746 1,048

Taro 441 463 486

Dusa (Levulan) 100 99 101

Specialty ex-DUSA 403 523 643

Absorica 81 47 41

Ilumya 174 242 336

Odomzo 36 40 42

Cequa 64 96 100

Bromsite 29 18 14

Others 10 10 10

Winlevi 9 70 100


Specialty: positive trends continue in Ilumya & Cequa

Ilumya

Ilumya, which was worst hit during the pandemic, has picked up growth.

1. Sun’s specialty recovery continued strongly in Q1FY22. Ilumya +38% QoQ (+18%

QoQ in Q4FY21); its IL-23 counterpart Skyrizi has grown at +28% QoQ.

2. Sun’s Ilumya becomes the fastest growing molecule in this class. Ilumya TRx

growth in Q1FY22 was at 101% YoY. Abbvie’s Skyrizi which was growing on

similar lines is now growing slower than Ilumya at 77% YoY, albeit on a higher

base

3. We forecast peak sales of $430mn of which ~$305mn is in plaque psoriasis and

~4125mn in psoriatic arthritis indication

SUN PHARMACEUTICALS



Ilumya performance continues to improve

Source: Edelweiss Research, Bloomberg

Ilumya becomes fastest growing molecule in IL-23 class

Source: Edelweiss Research, Bloomberg

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Retail TRx Insti TRx

Ilumya trajectory is picking up with Jun Qtr TRx growth at 38% QoQ/101% YoY. In Jun month, TRx grew 19% MoM; 102% YoY

784 712 771 860 896 925 842 877 1083 1033 1103 1172 12351514

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Ilumya Total TRx Skyrizi Total TRx

. Ilumya +38% QoQ; its IL-23 counterpart Skyrizi has grown on similar lines (+28% QoQ).


SUN PHARMACEUTICALS


Ilumya market model

Ilumya in plaque psoriasis FY22 FY23 FY24 FY25 FY26 FY27

Psoriasis patients 86,15,125 88,30,503 90,51,266 92,77,547 95,09,486 97,47,223

Plaque psoriasis 60,30,588 61,81,352 63,35,886 64,94,283 66,56,640 68,23,056

- % of patients with plaque psoriasis 70% 70% 70% 70% 70% 70%

Moderate-to-severe 15,07,647 15,45,338 15,83,971 16,23,571 16,64,160 17,05,764

- % of people with moderate-to-severe plaque psoriasis 25% 25% 25% 25% 25% 25%

Untreated patients/patients on topicals 9,98,816 10,04,470 10,09,782 10,14,732 10,19,298 10,23,458

- % untreated patients 66% 65% 64% 63% 61% 60%

Patient pool 5,08,831 5,40,868 5,74,190 6,08,839 6,44,862 6,82,306

Patients on treatment 3,05,298 3,24,521 3,44,514 3,65,303 3,86,917 4,09,383

- currently receiving treatment 60% 60% 60% 60% 60% 60%

Patients on modern biologics 1,83,179 2,01,203 2,30,824 2,52,059 2,66,973 2,82,475

Patients on conventional treatments eg anti-TNFs 1,22,119 1,23,318 1,13,690 1,13,244 1,19,944 1,26,909

- % proportion on biologics 60.0% 62.0% 67.0% 69.0% 69.0% 69.0%

Patients on Ilumya 6,228 8,652 10,618 11,595 11,595 11,595

Ilumya market share 3% 4% 4.600% 4.6% 4.6% 4.6%

Average cost ($) 28,000 28,000 28,000 26,600 26,387 26,176

Ilumya revenue in plaque psoriasis 174 242 297 308 306 304

Ilumya in psoriatic arthiritis FY22 FY23 FY24 FY25 FY26 FY27

Psoriatic arthritis patients 15,45,452 15,60,906 15,76,515 15,92,280 16,08,203 16,24,285

Diagnosed 10,50,907 10,77,025 11,03,561 11,30,519 11,57,906 11,85,728

- diagnosis rate 68.00% 69.00% 70.00% 71.00% 72.00% 73.00%

Untreated patients 4,20,363 4,30,810 4,41,424 4,52,208 4,63,162 4,74,291

- % untreated patients 40% 40% 40% 40% 40% 40%

Patient pool 6,30,544 6,46,215 6,62,136 6,78,311 6,94,744 7,11,437

Patients on treatment 3,78,327 3,87,729 3,97,282 4,06,987 4,16,846 4,26,862

- currently receiving treatment 60% 60% 60% 60% 60% 60%

Patients on modern biologics 1,09,715 1,24,073 1,39,049 1,54,655 1,70,907 1,87,819

Patients on conventional treatments eg anti-TNFs

- % proportion on biologics 29% 32% 35% 38% 41% 44%

Patients on Ilumya 0 0 1,390 2,320 3,760 4,508

Ilumya market share 0.0% 0.0% 1.0% 1.5% 2.2% 2.4%

Average cost ($) 28,000 28,000 28,000 28,000 28,000 28,000

Ilumya revenue in PsA 0 0 39 65 105 126


SUN PHARMACEUTICALS



Cequa

After volume dip seen in Jan’21 and Feb’21, Cequa clocked highest TRx in Jun’21 with

+79% YoY growth. For the quarter ended Jun’21, Cequa growth was 103%, ahead of

Xiidra’s 28% and Restasis’ 11%. Cequa list price increased by 4% in Apr’21 which

reduces Restasis list price premium from ~22% in Jan’21 to 17%. Restastis list price

increased by 5% in Jan’21.

Cequa seeing strong uptick in TRx growth

Source: Bloomberg, Edelweiss Research

Absorica (~USD135mn pre-genericisation)

Actavis which had settlement to launch on 27-Dec-2020, received final approval in

Mar’21 and launched generic Absorica on 1-April 2021. Following Actavis, Upsher

Smith launched its generic in May’21. This led to ~35% YoY decline in Absorica TRx;

however, excluding the LD ramp-up the decline in high dose TRx was ~54% in May

and Jun. ~38% of total Absorica Rx comprises low-dose Absorica (Absorica LD).

Absorica TRx declining sharply post genericisation

Source: Bloomberg, Edelweiss Research

6685

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Cequa clocked highest TRx in Jun'21 with 8% MoM growth.In Jun Qtr, Cequa TRx was 2x YoY as against 6-11% seen in other cyclosporines and 28% in Xiidra

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Absorice high dose Absorica low dose


SUN PHARMACEUTICALS


Winlevi: Limited potential but adds heft to derma franchise

Sun acquired the US and Canada rights of Winlevi (clascoterone), a topical cream

indicated for the treatment of acne in patients aged 12 years and older. Sun will pay

$45mn upfront, double digit royalties and milestone payments up to $190mn.

Approved in Aug-20, Winlevi will be commercially available from Q4CY21.

Winlevi is an androgen receptor inhibitor. Androgens stimulate sebaceous glands

(oil producing glands) thus making them produce more skin oil. This excess oil clogs

the pores and also makes good food for acne-causing bacteria. Thus, Winlevi inhibits

the androgen from producing excess oil. Winlevi is the first product approved in 40

years that has a unique mechanism of action.

In two Ph.3 clinical trials, Winlevi showed superiority to control arm. In first trial, at

12 weeks, 18.8% patients showed a 2 point improvement on IGA score of 0 (clear

skin) or 1 (almost clear skin) vs. 8.7% patients on the vehicle; likewise in 2nd trial,

20.9% showed 2 improvement vs. 6.6%. Treatment with Winlevi was associated with

statistically significant reductions in both inflammatory and non-inflammatory

lesions. However, as seen below, the efficacy vs. peers is not superior.

Winlevi clinical efficacy vs. peers

Clinical efficacy at Week 12 - 2 point improvement in IGA score Winlevi Epiduo Epiduo Forte Aczone

Trial 1 Trial 2 Trial 1 Trial 2 Trial 1 Trial 2

Drug 18.8% 20.9% 21.5% 30.1% 33.7% 42.0% 35.0%

Vehicle 8.7% 6.6% 5.6% 11.3% 11.0% 32.0% 38.0%

Inflammatory lesions: mean absolute (percent) reduction

Winlevi Epiduo Epiduo Forte Aczone


Drug 44.6% 29.6% 52.4% 53.4% 68.7% 46.0% 48.0%

Vehicle 36.3% 15.7% 31.8% 30.2% 39.2% 42.0% 40.0%

Non-inflammatory lesions: mean absolute (percent) reduction

Winlevi Epiduo Epiduo Forte Aczone


Drug 32.6% 47.1% 45.9% 48.1% 68.3% 31.0% 30.0%

Vehicle 21.8% 29.7% 27.8% 23.2% 37.4% 24.0% 21.0%


Winlevi peak sales calcuation

FY22 FY23 FY24 FY25 FY26 FY27

#Rx dispensed in US for acne 25 25 26 26 26 26

of which, topicals 16 16 16 16 16 16

- topicals % 62% 62% 62% 62% 62% 62%

Winlevi Rx (mn) 0.03 0.16 0.22 0.27 0.27 0.28

Winlevi ms 0.2% 1.0% 1.4% 1.7% 1.7% 1.7%

Price/Rx 300 450 450 450 450 450

Annual sales 9 70 100 122 123 125


SUN PHARMACEUTICALS



Levulan: Reaching a plateau

Levulan Kerastick FY22 FY23 FY24 FY25 FY26

AK patients in US 41 42 42 42 43

Annual Rx 13 14 15 15 16

Patients on PDT 0.5 0.5 0.6 0.6 0.7

- patients requiring PDT treatment 4% 4% 4% 4% 4%

Levulan market share 72% 65% 60% 55% 55%

Ameluz market share 28% 35% 40% 45% 45%

Treatment cost 285 290 295 300 305

Levulan revenues 100 99 101 101 111

Ameluz revenue 39 53 67 83 91


Sun Pharma Actual vs. Estimates

Year to March Q1FY22 Q1FY21 YoY (%) Q4FY21 QoQ (%) Edel

estimates

Deviation

(%) Consensus

Deviation

(%)

Revenue 97,187 75,853 28.1 85,230 14.0 89,708 8.3 87,837 10.6

Raw material costs 26,494 19,696 34.5 22,408 18.2 23,145 14.5

Gross profit 70,693 56,157 25.9 62,822 12.5 66,563 6.2

Gross margins (%) 72.7 74.0 (129.5) 73.7 (97.0) 74.2 (146.1)

Employee costs 17,587 17,590 (0.0) 16,775 4.8 18,118 (2.9)

R&D 5,926 4,210 40.8 5,387 10.0 5,831 1.6

Other expenses 19,768 16,713 18.3 20,069 (1.5) 20,364 (2.9)

Total operating expenses 43,281 38,513 59.0 42,230 13.4 44,313 (2.3)

EBITDA 27,412 17,644 55.4 20,592 33.1 22,251 23.2 21,030 30.3

EBITDA margin (%) 28.2 23.3 494.5 24.2 404.5 24.8 340.2 23.9 426.3

Net finance income (exp) 351 520 (32.5) 301 16.6 300

Depreciation 5,032 4,959 1.5 5,535 (9.1) 5,500 (8.5)

Other income 1,525 1,528 (0.2) 1,110 37.4 1,500 1.7

PBT 23,554 13,693 72.0 15,866 48.5 17,951 31.2

Exceptionals 5,512 35,542

6,836

PBT after exceptionals 18,042 (21,849) (95.4) 9,030 (23.0) 17,951 0.5

Income tax expense 3,956 2,459 60.9 550 618.7 2,872 37.7

Tax rate (%) 16.8 18.0

3.5

16.0

Reported Net profit 14,442 (16,566) (187.2) 8,942 61.5 15,078 (4.2)

Adjusted Net profit 19,792 11,460 72.7 13,431 47.4 13,878 42.6 14,128 40.1

Adjusted EPS 8.2 4.8 73.4 5.6 47.4 5.8 43.0



SUN PHARMACEUTICALS


Sun Pharma segmental breakdown

Segmental Q1FY22 Q1FY21 YoY (%) Q4FY21 QoQ (%) Edel estimates Deviation (%)

Total formulations 90,816 68,709 32 79,583 14 83,525 8.7

Domestic formulations 33,084 23,884 39 26,709 24 28,900 14.5

International formulations 57,732 44,824 29 52,874 9 54,624 5.7

US generics 28,000 21,364 31 26,946 4 27,010 3.7

- Taro 110 91 22 114 -3 115 (4.1)

- Ex-Taro 270 191 41 255 6 255 5.8

Emerging Market Formulations 16,052 13,161 22 14,015 15 14,740 8.9

RoW Formulations 13,680 10,300 33 11,913 15 12,875 6.3

Total bulk 5,149 5,537 -7 4,357 18 4,984 3.3

Others 730 612 19 698 5 400 82.5

Total gross sales 96,694 74,858 29 84,637 14 88,908 8.8

Ex-Taro performance Q1FY22 Q1FY21 YoY (%) Q4FY21 QoQ (%)

Revenue 86,348 66,929 29.0 74,414 16.0

EBITDA 23,942 14,963 60.0 17,852 34.1

EBITDA margin (%) 27.7 22.4

24.0

Adjusted Net profit 16,814 8,224 104.4 10,106 66.4

Source: Company, Edelweiss Research

SUN PHARMACEUTICALS



Financial snapshot

Year to March Q1FY22 Q1FY21 % change Q4FY21 % change FY21 FY22E FY23E

Net Revenue 97,187 75,853 28.1 85,230 14.0 3,34,981 3,81,210 4,27,944

Cost of revenue 26,494 19,696 34.5 22,408 18.2 86,901 1,00,370 1,09,940

Gross profit 70,693 56,157 25.9 62,822 12.5 2,48,081 2,80,840 3,18,004

Employee cost 17,587 17,590 (0.0) 16,775 4.8 68,622 72,397 77,102

R&D 5,926 4,210 40.8 5,387 10.0 21,028 24,779 26,533

Other expenses 19,768 16,713 18.3 20,069 (1.5) 73,597 81,847 89,314

EBITDA 27,412 17,644 55.4 20,592 33.1 84,833 1,01,817 1,25,056

EBITDA margin (%) 28.2 23.3 24.2 25 27 29

Depreciation 5,032 4,959 1.5 5,535 (9.1) 20,800 21,352 21,902

EBIT 22,380 12,684 76.4 15,057 48.6 64,034 80,465 1,03,153

Less: Interest Expense 351 520 (32.5) 301 16.6 1,414 1,203 991

Add: Other income 1,525 1,528 (0.2) 1,110 37.4 8,355 6,034 7,187

Add: Prior period items

Add: Exceptional items 5,512 35,542 6,836 -42,825 0 0

Profit before tax 23,554 13,693 72.0 15,866 48.5 28,150 85,296 1,09,349

Less: Provision for Tax 3,956 2,459 60.9 550 618.7 5,147 12,709 17,496

Less: Minority Interest -355 -7,742 (95.4) -462 (23.0) -6,191 5,000 4,800

Add: Share of profit from associates

Less: Profit from Discontinued Operations

Reported Profit 14,442 -16,566 (187.2) 8,942 61.5 29,194 67,587 87,053

Adjusted Profit 19,792 11,460 72.7 13,431 47.4 59,316 67,587 87,053

No. of Diluted shares outstanding 2,399 2,409 (0.4) 2,399 2,399 2,399 2,399

Adjusted Diluted EPS 8 5 73.4 6 47.4 25 28 36

as % of revenues

Cost of revenue 27.3 26.0 26.3 25.9 26.3 25.7

Employee cost 18.1 23.2 19.7 20.5 19.0 18.0

R&D 6.1 5.6 6.3 6.3 6.5 6.2

Total operating expenses 71.8 76.7 75.8 74.7 73.3 70.8

Gross profit 72.7 74.0 73.7 74.1 73.7 74.3

Operating profit 23.0 16.7 17.7 19.1 21.1 24.1

Net profit 14.9 (21.8) 10.5 8.7 17.7 20.3

Tax rate 16.8 18.0 3.5 18.3 14.9 16.0

Source: Company, Edelweiss Research


SUN PHARMACEUTICALS


Company Description Sun Pharmaceuticals is the largest Indian Pharma company with an impressive track

record of organic and inorganic growth. Various US acquisitions augment SUNP’s pipeline

with differentiated products, where SUNP has turned around business in a highly

profitable manner – Taro/ TDPL/Natco’s brands/etc. SUNP is among the first few Indian

pharma players to have shifted focus to specialty from generics. It has invested ~USD2bn

in this business so far. Within specialty, dermatology and ophthalmology are the key

investment areas. While the company has entered the commercialisation phase for most

of specialty products, it continue to, invest in development of specialty pipeline, and in

evaluating new markets for commercialising specialty products.

Investment Theme Recovery in ex-Taro US business, steady EM and RoW growth, solid domestic chronic biz

and visible cost control are likely to provide comfort to base business. But Sun’s

challenges are far from over as a) bimekizumab and mirikizumab can potentially enter

the market in CY22 competing with Ilumya; b) Absorica will face generic competition

from mid-FY22 at the latest; c) Marketing spends are likely to inch up again,

especially on the ophthal portfolio; d) R&D should increase in FY22 as Ilumya Ph.3 in

psoriatic arthritis and the in-licensed molecule from SPARC (SCD-044) continue their

trials; and e) while the US business was impressive in Q3 driven by ms gains in gLialda

and other products, continual surprises are unlikely as improvement in specialty is

set-off by modest Taro performance. Thus, while we welcome the specialty-led

recovery, we remain cautious on the sustainability in FY22.

Key Risks Better than expected pick up in specialty particularly Ilumya;

Surprise launch of product not considered in our forecasts;

Currency risk

SUN PHARMACEUTICALS



Additional Data Management

Chairman Israel Makov

Managing Director

Dilip S. Shanghvi

CFO C. S. Muralidharan

Click or tap here to enter text.

Auditor S R B C & Co. LLP

Holdings – Top 10* % Holding % Holding

LIC 7.37 Nippon AMC 1.22

ICICI Pru AMC 3.86 Blackrock 1.17

SBI Funds 2.03 Norges 0.75

Vanguard Group 1.63 UTI AMC 0.64

HDFC AMC 1.35 Mirae 0.59

*Latest public data

Recent Company Research Date Title Price Reco

27-May-21 Some rain, some shine ahead ; Result Update

699.5 Hold

09-Feb-21 Specialty recovery key; Company Update

586.2 Hold

30-Jan-21 Specialty drives growth; Result Update

586.2 Hold

Recent Sector Research Date Name of Co./Sector Title

29-Jul-21 Ajanta Pharma Best placed to clock consistent growth; Result Update

27-Jul-21 Torrent Pharma In-line quarter; limited earnings upside; Result Update

27-Jul-21 Dr Reddy's Labs Testing times ahead ; Result Update

Rating Interpretation

Source: Bloomberg, Edelweiss research

Daily Volume

Source: Bloomberg

Rating Distribution: Edelweiss Research Coverage

Buy Hold Reduce Total

Rating Distribution* 173 54 19 247

>50bn >10bn and <50bn <10bn Total

Market Cap (INR) 215 39 5 259

*1 stocks under review

Rating Rationale

Rating Expected absolute returns over 12 months

Buy: >15%

Hold: >15% and <-5%

Reduce: <-5%

TP515

TP575

TP500

TP380

TP380

300

395

490

585

680

775

Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21

(IN

R)

SUNP IN Equity Buy Hold Reduce0

18

36

54

72

90

Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21

(Mn

)


SUN PHARMACEUTICALS


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SUN PHARMACEUTICALS



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