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Sun Pharma: No one-offs this quarter - Views on News from Equitymaster
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Sun Pharma: No one-offs this quarter
Aug 19, 2011

Sun Pharma has announced its first quarter results for 2012 (1QFY12). The company has reported 19.8% YoY increase in sales where as net profits have declined by 11.2% YoY. Here is our analysis of the results.

Performance summary
  • Sales increase by 19.8% YoY primarily due to inclusion of Taro's financials into the consolidated statements of Sun Pharma.
  • Operating margins shrink by 11.6% (as a % of sales) due to a one-off benefit from the sale of Eloxatin in the comparable quarter last year, which was not present in 1QFY12.
  • Net profits decrease by 11.2% YoY due to lower operating margins and higher base effect due to low taxes and lower minority interest in the same quarter previous year


Financial performance: A snapshot
(Rs m) 1QFY11 1QFY12 Change
Net sales 13,651 16,357 19.8%
Expenditure 7,490 10,883 45.3%
Operating profit (EBIDTA) 6,161 5,474 -11.2%
EBDITA margin (%) 45.1% 33.5%  
Other income (88) 653 -842.0%
Depreciation 402 647 60.9%
Interest (203) (316) 55.7%
Profit before tax 5,874 5,796 -1.3%
Tax 97 143 47.4%
Minority Interest (133) (643)  
Profit after tax/(loss) 5,644 5,010 -11.2%
Net profit margin (%) 41% 31%  
No. of shares (m) 207 1,036  
Diluted earnings per share (Rs) 27 17  
Price to earnings ratio (x)*   29  
*On trailing 12 month basis

What has driven performance in 1QFY12?
  • Sun Pharma's sales increased by 19.8% YoY in 1QFY12. This was primarily due to inclusion of Taro's (US based subsidiary's) financials into the consolidated statements of Sun Pharma. The domestic formulations sales (~40% of revenues) grew by mere 12% YoY due to the discontinuation of the third party manufacturing business. However, excluding the same, the growth is around 18% YoY. Further, Sun Pharma is expected to continue growing faster than the industry due to its strong position in the key chronic therapies. 7 key products were launched during the quarter. Overall, the company is ranked no. 1 based on share of prescriptions with 6 classes of specialists: psychiatrists, neurologists, cardiologists, ophthalmologists, orthopedics and gastroenterologists.

    Revenue break-up
    (Rs m) 1QFY11 1QFY12 Change
    India Formulations 5,707 6,385 11.9%
    US Formulations 6,114 6,220 1.7%
    ROW Formulations 620 2,521 306.6%
    Total Formulations 12,441 15,126 21.6%
    Bulk 1,418 1,476 4.1%
    Total Sales 13,864 16,604 19.8%


  • Revenues from the US formulations business (~38% of sales) increased by 1.7% YoY to Rs 62.2 bn due to the higher base effect from one-time reveneus from Eloxatin in the same quarter last year. The non US export market (ROW Formulations) grew by 306% YoY to Rs 25 bn (~15% of total sales).

  • Operating margins shrank by 11.6% (as a % of sales) due to the one-off benefit from the sale of Eloxatin in the comparable quarter last year, which was not present this quarter. The consolidation of Taro financials nearly doubled the employee cost. The R&D expenses and other expenditure also increased substantially leading to a decrease in the operating margins.

  • Net profits decreased by 11.2% YoY due to lower operating margins and higher base effect due to low taxes and lower minority interest in the same quarter previous year. In addition to this, the current quarter did not see any onetime exclusive opportunities that were there in the first quarter of the previous year.

  • The company has filed 383 ANDAs with the US FDA, of which 232 have been approved. It has also filed 209 DMFs with the US FDA of which 132 have been approved. Taro filed two ANDAs and received approval for four.

What to expect?

At the current price of Rs 484, the stock is trading at a multiple of 17.9 times our estimated FY14 earnings. Sun Pharma has a strong chronic franchise which will help it grow in the domestic markets. In the US market, sales should pick up keeping in mind the fact that the number of drugs going off patent in next 2 to 3 years is quite large. Besides this, the acquisition of Taro and a healthy ANDA pipeline will also enable Sun Pharma to enhance its presence in the highly competitive US market.

With its current cash levels of US$ 1 bn, the company has also geared up for acquisitions in emerging markets like Brazil, Mexico, Russia and China. Last year, Sun Pharma announced the creation of a joint venture with Merck & Co. of the US to develop, manufacture and commercialize new drugs in the branded generics space. On a long term basis, this will help Sun Pharma augment its sales from the semi regulated markets which also enjoy higher margins. Having said that, the current valuations do not leave much on the table for investors.

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