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Sun Pharma: Protonix provision enters in - Views on News from Equitymaster
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Sun Pharma: Protonix provision enters in
Nov 12, 2012

Sun Pharma has announced its 2QFY13 results. The company has reported 41% YoY growth in sales and a decline of 47% YoY increase in net profits. Here is our analysis of the results.

Performance summary
  • Topline grows by 41% YoY during the quarter led by growth in both domestic and international market.
  • Operating margins improve by 2.6% leading to a 49% YoY growth in operating profits.
  • Bottomline decreases by 47% YoY during 2QFY13, due to provision made for Protonix liability of Rs 5.8 bn.

Standalone performance summary
(Rs m) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
Net sales     18,966 26,639 40.5% 35,338 53,473 51.3%
Expenditure     11,106 14,898 34.1% 21,988 29,311 33.3%
Operating profit (EBDITA) 7,860 11,741 49.4% 13,350 24,163 81.0%
EBDITA margin (%) 41.4% 44.1%   37.8% 45.2%  
Other income 1,218 1,693 39.0% 2,307 1,421 -38.4%
Interest (net) 56 283 408.3% 592 519 -12.3%
Depreciation 668 829 24.2% 1,315 1,630 24.0%
Profit before tax 8,355 12,322 47.5% 13,750 23,434 70.4%
Exceptional (loss) - (5,836)   - (5,836)  
Minority Interest 1,097 1,161 5.8% 1,740 2,417 38.9%
Tax 1,281 2,139 67.0% 1,424 4,064 185.4%
Profit after tax/(loss) 5,977 3,186 -46.7% 10,586 11,118 5.0%
Net profit margin (%) 31.5% 12.0%   30.0% 20.8%  
No. of shares (m)         840.3  
Diluted earnings per share (Rs)         25.0  
Price to earnings ratio (x)*         28.0  
*based on trailing 12 months earnings

What has driven performance in 2QFY13?
  • Sun Pharma's topline grew by 41% YoY during the quarter led by growth in both the domestic and international market. On back of this, the company revised its full year guidance to 30-32% from 20%.

  • Domestic business witnessed growth of 15% YoY. The company continues to remain at No 1 position in prescriptions for its Top 5 therapies.

  • The US business continued to witness robust growth of 67% YoY. Large part of growth was due to Lipodex, Stalevo under 180-days exclusivity and Eloxatin as per settlement. Taro witnessed some volume pressures during the quarter, and we believe Taro US growth to be around 22%. As Johnson and Johnson, the innovator of Lipodex will re-start its product manufacturing from Dec 2012 onwards, Lipodex sales for Sun Pharma will get impacted going forward. Sun Pharma does not hold approval for this product and current supply is based on USFDA's decision in order to meet shortages of this product. Each batch of Lipodex for supply in the US is verified and cleared by the USFDA. The company has also submitted ANDA for approval of the product.

  • ROW markets grow by 45% YoY, on back of new launches. We believe Taro contributed around US$ 30 m to Sun's RoW segment. Excluding Taro, Sun witnessed growth of 38% for the quarter.

    Consolidated Business Snapshot
    (Rs mn) 2QFY12 2QFY13 Change 1HFY12 1HFY13 Change
    India 7,046 8,099 14.9% 13,431 13,975 4.0%
    US 7,991 13,301 66.5% 14,211 28,723 102.1%
    Row 2,567 3,725 45.1% 5,089 7,318 43.8%
    Total 17,604 25,125 42.7% 32,730 50,016 52.8%
    Bulk 1,603 1,757 9.6% 3,079 3,795 23.3%
    Others 4 125   6 143  
    Total Revenues 19,211 27,007 40.6% 35,815 53,954 50.6%

  • Operating margins improved by 2.6% leading to a 49% YoY growth in operating profits. This was due to revenues from margin lucrative products.

  • Bottomline decreased by 47% YoY during 2QFY13 due to provision made for Protonix liability of Rs 5.8 bn. Excluding this liability, bottom line grew by 51%, inspite of higher tax. Going forward, the tax rate is expected to remain in range of 17%-20%.

  • Sun Pharma announced the acquisition of DUSA Pharma for cash consideration of US$ 230 m. DUSA Pharma is a dermatology focused company. It has Levulan as its specialty product, approved in the US and used for the treatment of actinic keratoses. The company also has various products under development.

What to expect?
At the current price of Rs 710, the stock is trading at a multiple of 19.8 times our estimated FY15 earnings. Sun Pharma has a strong chronic franchise which will help it grow in the domestic market. The company has been successful in the US by exploring various lucrative opportunities. Sun Pharma has proposed acquiring the remaining stake in Taro, which will make the latter a 100% subsidiary of Sun. Although the current performance of Taro has been strong, this might not be sustainable owing to Taro's thin pipeline and thus a cloud remains over its future performance. However, Sun Pharma has a healthy ANDA pipeline which will enable it to enhance its presence in the highly competitive US market. DUSA's acquisition adds another avenue to the company's overall growth.

We reiterate our HOLD view on the stock. We shall soon publish our updated target price for the stock after incorporating the impact of the new acquisition. Investors are therefore requested to remain cued in.

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