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Sun Pharma: Bottomline Slips into the Red Amidst Challenging Environment - Views on News from Equitymaster
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  • Aug 14, 2017 - Sun Pharma: Bottomline Slips into the Red Amidst Challenging Environment

Sun Pharma: Bottomline Slips into the Red Amidst Challenging Environment
Aug 14, 2017

Sun Pharma announced its results for the first quarter ended June 2017 (1QFY18). While revenues (including operating revenues) fell by 25% YoY, the company reported a loss of Rs 3.2 billion at the operating level.

Performance summary
  • Net sales were down 23% YoY on account of the intense pricing pressure in the US because of buyer consolidation, lack of new product approvals from the Halol facility because of USFDA issues, and de-stocking because of the transition to GST back home.
  • Moreover, sales were also down because the company had a 180-day exclusive for Imatinib (brand name Gleevec) in the first quarter last year, which was not there during the current quarter. Taro's sales were down 31% YoY. Any further decline was arrested by growth reported in the emerging and Rest of the World (ROW) markets.
  • Operating profits tanked 62.5% YoY as margins shrunk by 17.8% to 17.6% during the quarter. One of the reasons why the margins were robust in 1QFY17 was that the company had 180-day exclusivity for Imatinib, which was not there this quarter. Further, while sales during the quarter dropped significantly, costs did not fall at the same pace.
  • Infact, the company continued to invest in its specialty business even during the current quarter. Taro's drop in margins (operating profits were down 50% YoY) on account of a difficult pricing environment in the US also took its toll on Sun Pharma.
  • The company reported an extraordinary expense of Rs 9.5 billion during the quarter. This was the settlement amount that the company paid to plaintiffs with respect to an antitrust litigation related to the product Modafinil. As a result, Sun Pharma reported a loss of Rs 3.2 billion at the operating level. Excluding this item, the company reported net profits, but they were down 72% YoY.

    Consolidated Financial Snapshot
    (Rs m) 1QFY17 1QFY18 Change
    Net sales 80,067 61,667 -23.0%
    Other operating revenues 2,496 421 -83.1%
    Expenditure 53,353 51,131 -4.2%
    Operating profit (EBIDTA) 29,210 10,957 -62.5%
    Operating profit margin (%) 35.4% 17.6%  
    Other income 1,571 1,520 -3.3%
    Depreciation 3,160 3,466 9.7%
    Finance costs 1,346 1,094 -18.7%
    Profit before tax 26,275 7,916 -69.9%
    Tax 3,527 1,618 -54.1%
    Exceptional items 0 -9,505  
    Minority interest -71 -19  
    Profit after tax/ (loss) 22,677 -3,226  
    Net profit margin (%) 28.3% -5.2%  
    No. of shares (m) 2,406.7 2,399.3  
    Diluted earnings per share (Rs)*   25.9  
    P/E ratio (x)   17.5  

    * on a trailing twelve-month basis excluding extraordinary items

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Equitymaster Agora Research Private Limited (hereinafter referred to as "Equitymaster"/"Company") was incorporated on October 25, 2007. Equitymaster is a joint venture between Quantum Information Services Private Limited (QIS) and Agora group. Equitymaster is a SEBI registered Research Analyst under the SEBI (Research Analysts) Regulations, 2014 with registration number INH000000537.

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