Sun Pharma Result Updated

8/2/2019 Sun Pharma Result Updated

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

(` cr) 3QFY2012 2QFY2012 % chg qoq 3QFY2011 % chg yoyNet sales 2,145 1,895 13.2 1,562 37.4Other income (27) 118 - 58 -

Gross profit 1,531 1,531 (0.0) 1,129 35.5

Operating profit 964 784 22.9 441 118.8

Net profit 668 598 11.8 350 90.8Source: Company, Angel Research

Sun Pharma reported higher-than-expected 3QFY2012 performance. Net sales

reported 37.4% yoy growth. Net profit grew by 90.8% yoy, driven by higher-

than-expected improvement in OPM. However, on account of rich valuation

recommend a Neutral on the stock.Better-than-expected results: For 3QFY2012, Sun Pharma reported net sales of`2,145cr, up 37.4% yoy, mainly driven by the inclusion of Taros financials as

well as strong growth in overall exports. The companys OPM expanded to

44.9% in 3QFY2012 from 28.2% in 3QFY2011. Gross margin increased to

82.4% in 3QFY2012 from 72.3% in 3QFY2011. The improvement in OPM was

higher than gross margin improvement because of lower rise in other expenses during

the quarter. Net profit during the quarter reported 90.8% yoy growth to `668cr.

Outlook and valuation: Sun Pharma is one of the largest and fastest growingIndian pharmaceutical companies. Management has revised its guidance to 32-

34% top-line growth for FY2012. Growth reported during the year can also be

attributed to the consolidation of Taros financials. We expect Sun Pharmas

net sales to post a 27.3% CAGR to `9,272cr and EPS to register a 23.5% CAGR

to `26.7 over FY201113E. While the current declaration by the Sun with

regards to the possible product damages of $1bn on Pantaprazole, as estimated

by Pfizer, could act as an overhang on the stock. However, on account of richvaluations, we recommend a Neutral on the stock. Key financials (Consolidated)Y/E March (` cr) FY2010 FY2011E FY2012E FY2013ENet sales 4,007 5,721 7,416 9,272% chg (6.2) 42.8 29.6 25.0

Net profit 1,351 1,816 2,539 2,768% chg (25.7) 34.4 39.8 9.0

EPS (`) 13.0 17.5 24.5 26.7EBITDA margin (%) 34.0 34.4 40.3 36.3

P/E (x) 43.6 32.4 23.2 21.3

RoE (%) 18.2 21.0 24.5 22.5

RoCE (%) 15.7 19.1 23.9 22.6

P/BV (x) 7.5 6.2 5.2 4.4

EV/Sales (x) 14.6 10.0 7.7 6.1

EV/EBITDA (x) 42.8 29.0 19.2 16.8

Source: Company, Angel Research

NEUTRALCMP `558

Target Price -

Investment Period -

Stock Info

Sector

Bloomberg Code SUNP@IN

Shareholding Pattern (%)

Promoters 63.7

MF / Banks / Indian Fls 6.3

FII / NRIs / OCBs 19.4

Indian Public / Others 10.7

Abs. (%) 3m 1yr 3yr

Sensex 4.7 (4.6) 111.8

Sun Pharma 4.6 29.0 173.0

Face Value (`)

BSE Sensex

Nifty

Reuters Code

1

17,363

5,280

SUN.BO

Pharmaceutical

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

57,448

0.8

572/411

77,648

Sarabjit Kour Nangra+91 22 39357600 Ext: 6806

[email protected]

Sun PharmaPerformance Highlights

3QFY2012 Result Update | Pharmaceutical

March 5 , 2012


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Sun Pharma | 3QFY2012 Result Update

March 5, 2012 2

Exhibit 1:3QFY2012 performance (Consolidated)

Y/E March (` cr) 3QFY2012 2QFY2012 % chg qoq 3QFY2011 % chg yoy 9MFY2012 9MFY2011 % chgNet sales 2,145 1,895 13.2 1,562 37.4 5,675 4,331 31.0Other income (27.2) 118.2 - 58.0 - 187.8 150.4 24.9Total income 2,118 2,013 5 1,620 30.8 5,863 4,482 30.8Gross profit 1,767 1,531 15.4 1,129 56.5 4,185 3,184 31.43Gross margin (%) 82.4 80.8 72.3 73.7 73.5Operating profit 964 784 22.9 441 118.8 2,295 1,597 43.7Operating margin (%) 44.9 41.4 28.2 40.4 36.9Interest - - - - - - -

Depreciation 77 67 16.0 80 (3.8) 209 156 34.0

PBT 859 835 2.8 418 105.5 2,274 1,591 42.9Provision for taxation 63 128 (50.5) 54 16.4 206 81 152.9

PAT before extra-ordinary item 796 707 12.5 364 118.8 2,068 1,510 37.0Minority interest(MI) 127 110 16.1 13 848 301 30 901

Extraordinary item - - - - -

PAT after extra-ordinary item & MI 668 598 11.8 350 90.8 1,767 1,480 19.4EPS (`) 6.5 5.8 3.4 17.1 13.7


Exhibit 2:3QFY2012 Actual vs. Angel estimates

(` cr) Actual Estimates Variance (%)Net sales 2,145 1,900 12.9Other income (27) 58 -

Operating profit 964 654 47.5

Tax 63 110 (42.3)

Net profit 668 425 57.2Source: Company, Angel Research

Higher-than-expected top-line performance: Sun Pharma reported 37.4% yoygrowth in its net sales to `2,145cr during 3QFY2012, above our expectation of

`1,900cr. Top-line growth was mainly driven by the inclusion of Taros financials

as well as strong growth in overall exports. The companys domestic segment

reported overall growth of 8.7% yoy during the quarter, excluding the third

party sales for almost 32.1% of total sales. Excluding third-party business,which has been discontinued, underlying growth stood at 17% during the

quarter.

Overall exports sales of finished dosage products in stood at `1,475cr in

3QFY2012, accounting for 68% of total sales.

Taros net sales for the quarter came in at US$148mn, registering 44% yoy

growth. Net profit for the quarter was a US$62mn.

On the regulatory front, during the quarter, ANDAs for one product were filed.

With this, cumulatively ANDAs for 389 products have been filed by Sun Pharma

and Taro with the USFDA. ANDAs for three products received approvals in3QFY2012, taking the total number of approvals to 241. Currently, ANDAs for

148 products await USFDA approval, including 18 tentative approvals.


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March 5, 2012 3

Exhibit 3:Sales trend

668615 638

705 696

955 8691022

1217

1475

0

200

400

600

800

1000

1200

1400

1600

3QFY2011 4QFY2011 1QFY2012 2QFY2012 3QFY2012

Domestic Sales Export Sales

(`cr)


Better-than-expected OPM: During the quarter, Sun Pharmas OPM expanded to44.9%, above our expectation of 34.4%, mainly because its gross margin

improved to 82.4% from 72.3% in 3QFY2011. The improvement in OPM was

higher than gross margin improvement because of lower rise in all expenses

during the quarter.

Exhibit 4:OPM trend (%)

44.0

34.1

28.230.3

33.5

41.4 44.9

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

1QFY2011 3QFY2011 1QFY2012 3QFY2012

(%)


Net profit came in above expectations: For 3QFY2012, the companys net profitcame in at `668.3cr, up 90.8% yoy. This was higher than the estimated net profit

of `425cr on account of higher-than-expected OPM.


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March 5, 2012 4

xhibit 5:net profit trend

350

443501

598

668

0

100

200

300

400

500

600

700

3QFY2011 4QFY2011 1QFY2012 2QFY2012 3QFY2012

(`cr)


Concall takeaways

For FY2012, management has revised its revenue growth of 2830% from 32-

34%, on account of better performance of Taro and currency benefits on

account of the Indian Rupee depreciation.

Sun Pharmas overall tax rate is expected to increase from the current levels

and excluding Taro, the companys tax rate will be in the range of 9-10%.

Management has guided for a capexof Rs.400cr for FY2012. Post the favourable decision by the Israeli Supreme Court and subsequent

tender offer, Sun Pharma has a majority 66% stake in Taro. Sun Pharma has

acquired a pipeline of 150 ANDA products, which is largely focused on

dermatology and paediatrics.


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March 5, 2012 5

Investment arguments

Strongest ANDA pipeline: Sun Pharmas US business posted a 33% CAGR overFY200510, 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 FY2012 as well. Some of

the key products for Sun Pharma with limited competition include the generic

versions of Stalevo, Gabitril, Exelon, Strattera and Gleevec. On the Caraco front,

management indicated that the resolution of the USFDA issue would not happen in

FY2011 due to longer time taken than expected. The companys remediation work

plan to the USFDA on Caraco is ongoing.

Domestic business: Sun Pharmas domestic formulation business has grown abovethe industrys average over FY200510 at a 24% CAGR; it contributed 42% to the

companys total turnover in FY2011. The company has 2,600MRs and one of the

highest field force productivity of around of `70lakh/MR per year, which has

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

around 4.4%, with exposure to psychiatry, neurology, CVS, diabetic and

gastroenterology. In FY2011, Sun Pharma launched 39 products in the domestic

market.

Healthy balance sheet: Sun Pharma has one of the strongest balance sheets in thesector, with cash of around `2,194cr (~5% of mcap). Management has indicated

that it is looking at inorganic growth and scouting for acquisitions, especially in theUS and emerging markets.

Outlook and valuation: Sun Pharma is one of the largest and fastest growingIndian pharmaceutical companies. Management has revised its guidance to 32-

34% top-line growth for FY2012. Further, management expects R&D expenses to

be ~6% of net sales and capex at `450cr for FY2012.

Growth reported during the year can also be attributed to the consolidation of

Taros financials. We expect Sun Pharmas net sales to post a 27.3% CAGR to

`9,272cr and EPS to register a 23.5% CAGR to `26.7 over FY201113E. While the

current declaration by the Sun with regards to the possible product damages of

$1bn on Pantaprazole, as estimated by Pfizer, could act as an overhang on the

stock. However, on account of rich valuations, we recommend an Neutral stanceon the stock.


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March 5, 2012 6

Exhibit 6:Key assumptions

FY2012 FY2013Net sales growth (%) 29.6 25.0

Domestic sales growth (%) 14.6 17.2Export sales growth (%) 55.4 58.7

Growth in employee expenses (%) 15.1 15.5

Operating margins (%) 40.3 36.3

Net Profit Growth (%) 39.8 9.0

Capex (`cr) 500 200


Exhibit 7:One-year forward PE band

-

100

200

300

400

500

600

700

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

5x 10x 15x 20x Source: Company, Angel Research


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March 5, 2012 7

Exhibit 8:Recommendation Summary

Company Reco CMP Tgt. price Upside FY2013E FY11-13E FY2013E(`) (`) % PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)

Alembic Pharma. Buy 46 8277.3 5.6 0.7 4.6 34.8 26.6 38.80

Aurobindo Pharma Buy 122 16636.5 8.9 0.9 6.5 9.9 10.2 15.0

Aventis* Neutral 2,220 -- 20.1 2.8 18.4 13.6 17.7 20.4

Cadila Healthcare Buy 702 866 28.2 15.6 2.5 13.3 11.7 17.2 29.5

Cipla Accumulate 312 341 9.2 18.3 3.3 15.4 16.9 15.5 17.0

Dr Reddy's Accumulate 1,684 1,920 14.0 17.5 3.1 12.0 22.7 21.8 24.9

Dishman Pharma Buy 53 81 52.2 5.3 1.0 5.4 0.6 7.3 8.5

GSK Pharma*# Neutral 2,072 - - 23.8 5.4 15.3 14.6 41.0 30.7

Indoco Remedies Buy 415 555 33.7 7.5 0.9 6.1 15.6 14.2 16.9

Ipca labs Buy 333 393 18.0 10.2 1.6 7.3 25.4 25.9 27.8

Lupin Buy 493 593 20.0 16.6 2.7 13.8 23.9 24.8 28.6Orchid Chemicals Buy 186 255 37.1 6.6 1.3 6.3 13.7 8.9 15.8

Ranbaxy*# Neutral 426 - - 8.1 1.4 5.7 21.8 27.7 30.0

Sun Pharma Neutral 568 - - 21.3 6.1 16.8 23.5 22.6 22.5Source: Company, Angel Research; Note: *December year ending;#Based onCY2012 estimates


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March 5, 2012 8

Profit & Loss (Consolidated)

Y/E March (`cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EGross sales 3,461 4,375 3,981 5,807 7,531 9,406Less: Excise duty 104 103 27 85 114 134Net sales 3,357 4,273 4,007 5,721 7,416 9,272Other operating income 2 4 237 - 4 5

Total operating income 3,359 4,276 4,244 5,721 7,420 9,277% chg 61.5 27.3 (0.8) 34.8 29.7 25.0

Total expenditure 1,805 2,408 2,644 3,754 4,429 5,908

Net raw materials 722 856 1,098 1,461 1,409 1,762

Other mfg costs 132 202 221 314 350 437

Personnel 233 340 401 800 1,023 1,280

Other 718 1,011 925 1,494 1,646 2,429

EBITDA 1,551 1,864 1,363 1,967 2,988 3,364% chg 130.7 20.2 (26.9) 44.3 51.9 12.6

(% of Net Sales) 46.2 43.6 34.0 34.4 40.3 36.3

Depreciation & amort. 97 123 153 204 250 272

EBIT 1,454 1,741 1,210 1,763 2,738 3,092% chg 146.1 19.7 (30.5) 45.7 55.3 12.9

(% of Net Sales) 43.3 40.7 30.2 30.8 36.9 33.4

Interest & other charges - - - - - -

Other income 143 205 205 273 244 272

(% of PBT) 8.9 10.5 14.5 13.4 8.2 8.1

Share in profit of Asso. - - - - - 1.0

Recurring PBT 1,599 1,950 1,415 2,036 2,986 3,369% chg 91.9 21.9 (27.4) 43.9 46.7 12.8

Extraordinary expense/(inc.) - - - - - 1.0

PBT (reported) 1,599 1,950 1,415 2,036 2,986 3,368Tax 48.5 71.2 67.9 128.4 368.2 514.4

(% of PBT) 3.0 3.7 4.8 6.3 12.3 15.3

PAT (reported) 1,551 1,878 1,347 1,907 2,618 2,854 Add: Share of earnings of asso. - - - - - 1

Less: Minority interest (MI) 64 60 (4) 91 79 86

Prior period items - - - - - 1

PAT after MI (reported) 1,487 1,818 1,351 1,816 2,539 2,768ADJ. PAT 1,487 1,818 1,350 1,816 2,539 2,769% chg 89.6 22.3 (25.8) 34.5 39.8 9.1

(% of Net Sales) 44.3 42.6 33.7 31.7 34.2 29.9

Basic EPS (`) 14.4 17.6 13.0 17.5 24.5 26.7Fully Diluted EPS ( ) 14.4 17.6 13.0 17.5 24.5 26.7% chg 77.0 22.3 (25.7) 34.4 39.8 9.0


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March 5, 2012 9

Balance Sheet (Consolidated)

Y/E March (`cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013ESOURCES OF FUNDSEquity share capital 104 104 104 104 104 104Preference capital - - - - - -

Reserves & surplus 4,888 6,941 7,725 9,380 11,368 13,535

Shareholders funds 4,991 7,045 7,829 9,483 11,471 13,638Minority interest 189 197 193 847 926 1,011

Total loans 144 179 171 426 426 426

Deferred tax liability 9 (68) (89) (365) (27) (18)

Total liabilities 5,333 7,353 8,104 10,391 12,796 15,057APPLICATION OF FUNDSGross block 1,596 2,148 2,334 3,345 3,745 4,108

Less: Acc. depreciation 561 685 801 822 1,071 1,343

Net block 1,035 1,463 1,533 2,523 2,674 2,765Capital work-in-progress 69 157 145 271 271 271

Goodwill 173 325 406 772 772 772

Investments 756 1,859 3,066 2,231 2,231 2,231Current assets 3,937 4,268 3,712 6,017 8,702 11,338

Cash 1,239 1,669 607 2,194 3,696 5,079

Loans & advances 508 742 856 1,173 1,595 1,993

Other 2,190 1,857 2,249 2,651 3,412 4,265

Current liabilities 637 720 758 1,423 1,854 2,318

Net current assets 3,300 3,548 2,954 4,594 6,848 9,020Mis. Exp. not written off - - - - - -

Total assets 5,333 7,353 8,104 10,391 12,796 15,057


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March 5, 2012 10

Cash Flow Statement (Consolidated)

Y/E March (`cr) FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EProfit before tax 1,599 1,949 1,415 2,036 2,986 3,369

Depreciation 97 123 153 204 250 272(Inc)/Dec in working capital (934) 3 (467) (53) (752) (789)

Direct taxes paid 182 169 162 - 30 505

Cash Flow from Operations 580 1,907 938 2,187 2,454 2,347(Inc.)/Dec.in Fixed Assets (109) (640) (174) (1,137) (400) (363)

(Inc.)/Dec. in Investments (502) (1,103) (1,207) 835 - -

Other income - - - - - -

Cash Flow from Investing (611) (1,744) (1,381) (301) (400) (363)Issue of Equity 7 - - - - -

Inc./(Dec.) in loans 971 (35) 8 (254) - -

Dividend Paid (Incl. Tax) (2) (242) (333) (402) (551) (601)

Others (1,714) 545 (294) 357 - -

Cash Flow from Financing (738) 267 (619) (299) (551) (601)Inc./(Dec.) in Cash (769) 430 (1,062) 1,586 1,503 1,383

Opening Cash balances 2,008 1,239 1,669 607 2,194 3,696Closing Cash balances 1,239 1,669 607 2,194 3,696 5,079


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March 5, 2012 11

Key Ratios

Y/E March FY2008 FY2009 FY2010 FY2011 FY2012E FY2013EValuation Ratio (x)P/E (on FDEPS) 39.6 32.4 43.5 32.4 23.2 21.2P/CEPS 7.4 6.1 7.8 5.8 4.2 3.9

P/BV 11.8 8.3 7.5 6.2 5.1 4.3

Dividend yield (%) 1.8 2.4 2.4 2.9 4.0 4.4

EV/Sales 17.2 13.4 14.6 10.0 7.5 5.8

EV/EBITDA 37.2 30.8 42.8 29.0 18.6 16.1

EV / Total Assets 10.8 7.8 7.2 5.5 4.3 3.6

Per Share Data (`)EPS (Basic) 14.4 17.6 13.0 17.5 24.5 26.7

EPS (fully diluted) 14.4 17.6 13.0 17.5 24.5 26.7

Cash EPS 76.5 93.7 72.6 97.5 134.6 146.8

DPS 10.5 13.8 13.8 16.6 22.8 24.8

Book Value 48.2 68.0 75.6 91.6 110.8 131.7

Dupont AnalysisEBIT margin 43.3 40.7 30.2 30.8 36.9 33.4

Tax retention ratio 97.0 96.3 95.2 93.7 87.7 84.7

Asset turnover (x) 1.0 0.9 0.6 0.7 0.9 1.0

ROIC (Post-tax) 41.9 34.3 18.5 21.1 27.8 27.5

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

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

Operating ROE 35.3 26.9 16.0 18.5 21.2 18.9

Returns (%)ROCE (Pre-tax) 31.1 27.4 15.7 19.1 23.6 22.2

Angel ROIC (Pre-tax) 45.2 38.5 19.9 25.0 36.0 36.4

ROE 38.3 30.2 18.2 21.0 24.2 22.1

Turnover ratios (x) Asset Turnover (Gross Block) 2.2 2.3 1.9 2.0 2.1 2.4

Inventory / Sales (days) 78 75 88 81 100 115

Receivables (days) 114 98 88 75 87 105

Payables (days) 35 37 34 29 30 24

WC cycle (ex-cash) (days) 183 168 182 151 137 140

Solvency ratios (x)Net debt to equity (0.2) (0.2) (0.1) (0.2) (0.3) (0.3)

Net debt to EBITDA (0.7) (0.8) (0.3) (0.9) (1.1) (1.4)

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


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March 5 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.

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

Documents

Sun Pharma Result Updated