X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2018 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Sun Pharma: Impacted by one-offs - Views on News from Equitymaster
StockSelect
  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Sun Pharma: Impacted by one-offs
Aug 25, 2015

Sun Pharma has announced its 1QFY16 results. The company has reported 3.3% YoY growth in sales and a decline of 60.2% YoY in net profits. Here is our analysis of the results.

Please note, the financials for 1QFY16 include several one-time expenses and exceptional costs related to the integration of the Ranbaxy business. Thus, the current performance is not strictly comparable with 1QFY15. Both these quarters include the financials of erstwhile Ranbaxy Laboratories Ltd.

Performance summary
  • Net sales grow by 3.3% YoY. The India business witnesses good growth, while growth in exports is lukewarm.
  • The EBITDA margins are down by 3.2% to 27.4% during the quarter. The operating expenses include various costs pertaining to restructuring and integration.
  • The bottom line plunges by 60.2% YoY due to a reduction in other income and substantial increase in exceptional expenses, which are one time in nature.

(Rs m) 1QFY15 1QFY16 Change
Net sales 63,134 65,222 3.3%
Other operating income 278 2,354 745.9%
Expenditure 44,031 49,079 11.5%
Operating profit (EBDITA) 19,381 18,497 -4.6%
EBDITA margin (%) 30.6% 27.4%  
Other income 1,819 1,054 -42.1%
Interest (net) 1,489 1,230 -17.4%
Depreciation 2,354 2,401 2.0%
Profit before tax 17,357 15,920 -8.3%
Exceptional (loss)  (2,378)  (6,852)  
Minority Interest 871 2,011 131.0%
Tax 2,063 2,268 9.9%
Profit after tax/(loss) 12,046 4,790 -60.2%
Net profit margin (%) 19.1% 7.3%  
No. of shares (m)     2,406.0
Adj Diluted earnings per share (Rs)     15.8
Price to earnings ratio (x)*     56.2
*based on trailing 12 months earnings

What has driven performance in 1QFY16?
  • The total topline (including other operating income) grew by 6.6% YoY. This growth was partly fueled by robust other operating income. Of the total operating income, major part was on account of some brand divestments. The latter included those undertaken as per regulatory requirement or those which were not profit making.

    Consolidated Business Snapshot
    (Rs m) 1QFY15 1QFY16 Change
    Formulations
    India 16,061 17,837 11.1%
    US 30,231 30,906 2.2%
    Row 9,431 8,448 -10.4%
    Emerging markets 5,864 5,749 -2.0%
    Total 61,587 62,940 2.2%
    Bulk  2,061 2,714 31.7%
    Others 175 214 22.3%
    Total Revenues 63,824 65,868 3.2%

  • Post the acquisition of Ranbaxy, Sun Pharma has become the leading player and ranked 1 in the domestic market. Both Ranbaxy and Sun Pharma have complimentary portfolios, which will help in future growth. On the export front, US grew by 4% YoY in constant currency terms. According to the management, the performance in US improved Q-o-Q and some of the supply constraints at its Halol facility were also eased. That said, price erosion in some key products continue to impact growth in the US. The company is witnessing competition in Doxil, Doxycycline and Cymbalta. The businesses in other geographies were impacted by currency depreciation. Further, Sun Pharma also exited from some of its businesses.

  • The company has cited that it has taken Rs 2.1 bn of adjustments above EBIDTA related to Ranbaxy integration. The impact of integration on above EBIDTA items is ~3.2% of sales.

  • On the bottom line, the company has taken hit of Rs 6.9 bn one-off expenses (booked below EBIDTA) on account of impairment of certain fixed assets.
What to expect?

At the current price of Rs 888, the stock is trading at a multiple of 20.3 times our estimated FY17 earnings.

Sun Pharma is restructuring Ranbaxy's operations and exiting from low margin and loss making businesses. The company is harmonizing the business which has the potential for robust growth as a merged entity. Over the long term, Sun is aiming to improve Ranbaxy's R&D productivity by making filings globally.

While near term operating challenges continue to hurt Sun Pharma's performance, in the Indian pharma space, Sun continues to be one of the stronger players. Differentiated drugs across its subsidiaries will be key drivers for the company.

According to us, the clearance of issues at its Halol facility will be an important trigger for the company.

We continue to remain confident about Sun Pharma's ability to launch varied products having high entry barriers and derive growth from both the domestic and international markets.

We are in process of updating our FY18 estimates. We recommend that those investors who have the stock of Sun Pharma can Hold on to it.

We would like to gently remind you that your allocation to equities should be decided upon after keeping aside some safe cash. Also within your overall exposure to equities please ensure that you broadly follow suggested asset allocation and that no single stock comprises 5% of your portfolio.

To Read the Full Story, Subscribe or Sign In



DISCLOSURES UNDER SEBI (RESEARCH ANALYSTS) REGULATIONS, 2014
INTRODUCTION:
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.

BUSINESS ACTIVITY:
An independent research initiative, Equitymaster is committed to providing honest and unbiased views, opinions and recommendations on various investment opportunities across asset classes.

DISCIPLINARY HISTORY:
There are no outstanding litigations against the Company, it subsidiaries and its Directors.

GENERAL TERMS AND CONDITIONS FOR RESEARCH REPORT:
For the terms and conditions for research reports click here.

DETAILS OF ASSOCIATES:
Details of Associates are available here.

DISCLOSURE WITH REGARDS TO OWNERSHIP AND MATERIAL CONFLICTS OF INTEREST:
  1. 'subject company' is a company on which a buy/sell/hold view or target price is given/changed in this Research Report.
  2. Neither Equitymaster, Research Analyst or his/her relative have any financial interest in the subject company.
  3. Equitymaster's Associate has financial interest in Sun Pharma.
  4. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have actual/beneficial ownership of one percent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.
  5. Neither Equitymaster, it's Associates, Research Analyst or his/her relative have any other material conflict of interest at the time of publication of the research report.
DISCLOSURE WITH REGARDS TO RECEIPT OF COMPENSATION:
  1. Neither Equitymaster nor it's Associates have received any compensation from the subject company in the past twelve months.
  2. Neither Equitymaster nor it's Associates have managed or co-managed public offering of securities for the subject company in the past twelve months.
  3. Neither Equitymaster nor it's Associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  4. Neither Equitymaster nor it's Associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months.
  5. Neither Equitymaster nor it's Associates have received any compensation or other benefits from the subject company or third party in connection with the research report.
GENERAL DISCLOSURES:
  1. The Research Analyst has not served as an officer, director or employee of the subject company.
  2. Equitymaster or the Research Analyst has not been engaged in market making activity for the subject company.
Definitions of Terms Used:
  1. Buy recommendation: This means that the investor could consider buying the concerned stock at current market price keeping in mind the tenure and objective of the recommendation service.
  2. Hold recommendation: This means that the investor could consider holding on to the shares of the company until further update and not buy more of the stock at current market price.
  3. Buy at lower price: This means that the investor should wait for some correction in the market price so that the stock can be bought at more attractive valuations keeping in mind the tenure and the objective of the service.
  4. Sell recommendation: This means that the investor could consider selling the stock at current market price keeping in mind the objective of the recommendation service.
Feedback:
If you have any feedback or query or wish to report a matter, please do not hesitate to write to us.

Small Investments
BIG Returns

Zero To Millions Guide 2018
Get our special report, Zero To Millions
(2018 Edition) Now!
We will never sell or rent your email id.
Please read our Terms

SUN PHARMA SHARE PRICE


Dec 13, 2017 (Close)

TRACK SUN PHARMA

  • Track your investment in SUN PHARMA with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
  • Add To MyStocks

SUN PHARMA - TEVA PHARMA COMPARISON

COMPARE SUN PHARMA WITH

MARKET STATS