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Sun Pharma: Tough US Scenario Continues to Hit Business - Views on News from Equitymaster
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  • Nov 20, 2017 - Sun Pharma: Tough US Scenario Continues to Hit Business

Sun Pharma: Tough US Scenario Continues to Hit Business
Nov 20, 2017

Sun Pharma announced its results for the second quarter ended September 2017 (2QFY18). While revenues (including operating revenues) fell by 19.5% YoY, net profits plunged 60% YoY.

Performance summary
  • Net sales (excluding operating revenues) were down 15% YoY on account of the intense pricing pressure in the US because of buyer consolidation, and lack of new product approvals from the Halol facility because of USFDA issues.
  • Moreover, sales were also down because the company had a 180-day exclusive for Imatinib (brand name Gleevec) in the second quarter last year, which was not there during the current quarter (the exclusivity for Imatinib expired in July 2016). Taro's sales were down 26% YoY. Any further decline was arrested by growth reported in the emerging and Rest of the World (ROW) markets.
  • However, the Indian branded formulations business did well to grow by 11% YoY and now accounts for around 34% of the company's revenues.
  • Operating profits tanked 57% YoY as margins shrunk by 17.6% to 20.7% during the quarter. One of the reasons why the margins were robust in 2QFY17 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 infact increased as the company continued to invest in its global specialty business. Taro's drop in margins on account of a difficult pricing environment in the US also took its toll on Sun Pharma.
  • Net profits plunged 60% YoY more or less at the same pace of fall in operating profits. While other income increased substantially, this was offset by higher finance costs. Reduction in tax expenses could not do much in arresting this fall.

    Consolidated Financial Snapshot
    (Rs m) 2QFY17 2QFY18 Change 1HFY17 1HFY18 Change
    Net sales 77,492 65,901 -15.0% 157,558 127,567 -19.0%
    Other operating revenues 5,110 603 -88.2% 7,605 1,024 -86.5%
    Expenditure 50,924 52,747 3.6% 104,277 103,879 -0.4%
    Operating profit (EBIDTA) 31,677 13,756 -56.6% 60,887 24,713 -59.4%
    Operating profit margin (%) 38.3% 20.7%   36.9% 19.2%  
    Other income 1,194 2,548 113.4% 2,765 4,068 47.1%
    Depreciation 3,038 3,587 18.0% 6,198 7,053 13.8%
    Finance costs 537 1,574 193.1% 1,883 2,669 41.7%
    Profit before tax 29,295 11,144 -62.0% 55,570 19,059 -65.7%
    Tax 4,417 1,114 -74.8% 7,944 2,732 -65.6%
    Exceptional item 0 0   0 -9,505  
    Minority interest -168 -12   -239 -31  
    Profit after tax/ (loss) 24,711 10,018 -59.5% 47,388 6,792 -85.7%
    Net profit margin (%) 31.9% 15.2%   30.1% 5.3%  
    No. of shares (m)         2,399.3  
    Diluted earnings per share (Rs)*         19.7  
    P/E ratio (x)         26.2  

    * on a trailing twelve months basis excluding extraordinary items

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