Sun Pharma has ended FY02 with 22% growth in sales driven mainly by domestic formulation sales. Operating margins jumped by 120 basis points to 26%. However, growth seems to have slowed down considering the fourth quarter numbers, which recorded a growth of 10% in topline.
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The positive highlight of the quarter was continuing strong growth in the domestic formulations segment which grew by 24% from Rs 891 m to Rs 1.1 bn. Bulk exports grew marginally by 3% to Rs 269 m, but domestic bulk saw a negative growth of 9% to Rs 341 m. The key reason for this is the discontinuation of the Cephalosporins business. The company is expected to further prune Cephalosporin bulk business to the tune of Rs 300 m. The disappointing part of the results was a dismal performance in formulations exports. However, the company is confident of achieving 30% growth in this segment going forward. Further, results were also impacted due to Pradeep Drugs merger into Sun, which incurred a loss of Rs 10 m.
Meanwhile, Caraco, Sun's US subsidiary, inched forward to break even, reducing its YoY operating loss from US $ 1.2 m to a marginal US $ 0.2 m. Caraco is likely to file 5 ANDAs in the current year and Sun will file an additional 4 ANDAs from India. Over the last six months, Caraco has received 4 drug approvals and is targeting 5 more in the current year. However, each approval individually is not very attractive. Additionally, Sun Pharma is expected to file 4 ANDA's on its own. The bulk drugs for these ANDA's are likely to be supplied from Sun, as the company's manufacturing facilities now enjoy neccessary FDA approvals. Operating margins on a consolidated basis are expected to improve on account of this.
At the current market price of Rs 568, the stock is trading at 16x its FY02 earnings. Though valuations are at a discount to its peers, the same could be expected to improve only on further clarity on its international business. Considering the product portfolio of Caraco, we expect Caraco to take another 5-6 months time before it achieves breakeven.
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