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Sun Pharma: Price Erosion in US Impacts Growth - Views on News from Equitymaster
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Sun Pharma: Price Erosion in US Impacts Growth
May 30, 2017

Sun Pharma has announced its March quarter (4QFY17) results. The company has reported 8% YoY decline in sales and a decline of 13.6% YoY in the net profits. Here is our analysis of the results.

Performance summary
  • Top line (including other operating income) declined by 6.7% YoY for the quarter. The decline was mainly on account of the US base business which declined by 34% Y-o-Y for the quarter. Emerging markets witnessed a growth of 46% YoY, while growth in Rest of the World markets was by 38% YoY. The growth in US business was also impacted by decline in sales growth of its subsidiary Taro. The sales of Taro were down by 26% in Q4 as compared to last year.
  • Sales were impacted due to price erosion and supply disruption. Domestic formulations grew by 10% YoY. Due to NLEM pricing restrictions, revenues from domestic growth was impacted. This has largely been on the back of addition of acute therapy drugs post-merger of Ranbaxy and impact of Rs1,500m sales in India formulation in FY17E due to revised price of the drugs in NLEM-list.
  • The EBITDA margins for the quarter stood 21.7% for quarter vs 29.7% during 4QFY16, which was largely due to pricing pressures in some of its key drugs leading to lower gross margins.
  • The net profits for the company were down by 13.6% YoY, mainly due to lower operating margins for the quarter.

    Financial performance: A snapshot
    (Rs m) 4QFY16 4QFY17 Change FY16 FY17 Change
    Net sales 74,160 68,252 -8.0% 278,880 302,642 8.5%
    Other operating income 2,383 3,118 30.9% 5,990 13,142  
    Expenditure 53,824 55,895 3.8% 203,287 214,892 5.7%
    Operating profit (EBDITA) 22,719 15,475 -31.9% 81,583 100,893 23.7%
    EBDITA margin (%) 29.7% 21.7%   28.6% 31.9%  
    Other income 2,060.0 2,245.0 9.0% 6,583 6,232 -5.3%
    Interest (net) 1,029.9 449.9 -56.3% 5,232 3,998 -23.6%
    Depreciation 2,880.1 3,381.7 17.4% 10,375 12,648 21.9%
    Profit before tax 20,869 13,888 -33.5% 72,557 90,479 24.7%
    Exceptional Items 0 0   0 0  
    Tax 4,176 443 -89.4% 9,138 12,116 32.6%
    Minority Interest 2,532 1,208   17,963 8,719  
    Profit after tax/(loss) 14,161 12,237 -13.6% 45,456 69,644 53.2%
    Net profit margin (%) 19.1% 17.9%   16.3% 23.0%  
    No. of shares (m) 2,407 2,399   2,407 2,399.3  
    Diluted earnings per share (Rs) 5.9 5.1   18.9 29.0  
    Price to earnings ratio (x)*         17.2  
    *based on trailing 12 months earnings
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  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report
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