Sun Pharma: 'Eloxatin' exhilarates - Views on News from Equitymaster

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Sun Pharma: 'Eloxatin' exhilarates

Jul 28, 2010

Sun Pharma has announced its 1QFY11 results. The company has reported 78% YoY and 244% YoY growth in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Revenues grow by a robust 78% YoY largely due to the one-time sales of the product 'Eloxatin' in the US market.
  • Operating margins expand substantially to 44% due to reduction in all costs (as a percentage of sales) led by the one-time sale of 'Eloxatin'.
  • Strong performance at the topline and operating level percolate down to the bottomline which grows by a dazzling 244% YoY.

Consolidated snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 7,876 13,997 77.7%
Expenditure 6,590 7,837 18.9%
Operating profit (EBIDTA) 1,286 6,160 379.0%
Operating profit margin (%) 16.3% 44.0%  
Other income 603 116 -80.8%
Depreciation 376 402 7.0%
Profit before tax 1,513 5,873 288.1%
Tax 31 97  
Minority interest (156) 133  
Profit after tax/ (loss) 1,638 5,643 244.4%
Net profit margin (%) 20.8% 40.3%  
No. of shares (m) 207.1 207.1  
Diluted earnings per share (Rs)*   84.6  
P/E ratio (x)   21.4  
* on a trailing twelve months basis

What has driven performance in 1QFY11?
  • Sun Pharma's topline grew by a dazzling 78% YoY during the quarter. This was largely due to the one-time sales that the company generated from the product 'Eloxatin', which was distributed by Caraco in the US market. With the court judgement going against Sun Pharma, the distribution of this product was stopped at the end of June. And so, there will be no revenues from this product in the forthcoming quarters.

  • In the US market, Caraco is actively working with the USFDA to take corrective action at its manufacturing plant in Detroit. During the quarter, 4 ANDAs were filed. 7 products received approvals. Thus, the cumulative ANDA filings between Sun Pharma and Caraco now stand at 211. Out of these, 120 products await US FDA approval. Not just that, in June 2010, Sun Pharma announced a settlement with Orion over patent litigation related to generic 'Stalevo' and generic 'Comtan'. This settlement will enable Sun Pharma to launch generic 'Stalevo' in FY12 and generic 'Comtan' in FY13 with an exclusivity window. International formulations grew by a robust 32% YoY during the quarter. Thus, overall export formulation sales grew by 99% YoY in 1QFY11.

  • Domestic formulations also recorded a strong 91% YoY growth during the quarter due to the low base effect in 1QFY10. On a like-to-like basis, sales from the domestic market grew by 17% YoY. The company's market share in the domestic market stands at 3.7% and the 5 key therapeutic areas in the chronic segment accounted for 75% of total domestic formulation sales. The company launched 10 new products during the quarter in this market.

    Revenue break-up
    (Rs m) 1QFY10 1QFY11 Change
    Formulations 3,129 5,984 91.3%
    Bulk 279 335 20.2%
    Others 4 4 13.2%
    Total (A) 3,411 6,324 85.4%
    Formulations 3,404 6,782 99.2%
    Bulk 1,190 1,104 -7.2%
    Others 9 1 -91.2%
    Total (B) 4,603 7,886 71.3%
    Grand Total ((A)+(B)) 8,014 14,210 77.3%

  • Operating margins expanded considerably from 16.3% in 1QFY10 to 44% in 1QFY11 largely due to the favourable impact of the one-time sale from 'Eloxatin'. As a result, all cost heads declined considerably (as a percentage of sales). Thus, strong performance at the both the topline and operating level percolated down to the bottomline which grew by a splendid 244% YoY.

What to expect?
At the current price of Rs 1,807, the stock is trading at a multiple of 16 times our estimated FY13 earnings. Going forward, India, the semi-regulated markets and the US will be the key growth drivers. While we expect sales from the US to be subdued in FY11, the same should pick up in FY12 on the assumption that Caraco's issues with the US FDA gets resolved by then and keeping in mind the fact that the number of drugs going off patent in that year is considerable. Further, its businesses excluding Caraco will continue to do well. Overall, we maintain our view ResearchPro subscribers can view latest updates here on the stock from a long term perspective.

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