Sun Pharma: Wishing away the clouds - Views on News from Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

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

Sun Pharma: Wishing away the clouds

Dec 23, 2000

It has been one of India’s fastest growing pharmaceutical companies. Over the last two years it has managed to grow its topline by over 30 percent year on year when the overall pharma industry has grown by not more than 12 percent per annum. Last year the company achieved a 33 percent growth in turnover, a 20 percent pretax margin and a return on networth of 24 percent. A fantastic performance by any standard. The company in question: Sun Pharma. Let’s take a look at what’s behind the company’s success. Sun Pharma adopted a three pronged approach over the last five years. First of all, it focussed its energies on the relatively faster growing therapeutic areas. Second, it adopted the acquisition route for building a critical mass. And finally, it has been very aggressive in new product launches which not only enables to keep its exposure to the Drug Price Control Order (DPCO) to the minimum but also enables it to charge higher prices for its products.

Sun Pharmaceuticals manufactures formulations in niche segments such as psychiatry, cardiovascular, gastroentology and neurology. These segments are among the faster growing segments of the pharma industry. While most of the top Indian companies have focussed on antibiotics and anti–infectives, Sun Pharma focused on therapeutic areas such as depression, hypertension and cancer.

Sun has also been extremely aggressive in the launch of new products with almost 24 new product launches in its niche areas, slated for the current year itself (10 of these have already been launched). These are expected to help the company achieve at least a 25 percent growth in the coming year too. The company derives almost 40 percent of its revenues from products introduced in the past five years. Consequently its exposure to revenues accruing from products under the DPCO is a relatively low 19 percent of domestic formulation sales.

Over the years Sun has used the strategy of acquisitions and mergers to grow quickly. It acquired Knoll Pharma’s bulk drug facility, Gujarat Lyka Organics, 51.5 percent in M. J. Pharma, merged Tamil Nadu Dadha Pharma, acquired Natco’s brands and merged Milmet Labs.

Perhaps the only area of concern is the continuing losses of its US based affiliate Caraco Pharma, which is the company’s vehicle for launch of generics. Sun has invested US$ 12.8 m – US$ 7.5 m towards equity and US$ 5.3 m towards debt in Caraco, which has registered a loss of over US$ 9.7 m for the year ended December 1999. This loss however includes the US$ 6.3 m that were incurred for R&D related to product filings. Caraco has submitted around nine abbreviated new drug applications (ANDA) which are awaiting US FDA approval. These are expected to come through in the first quarter of the calendar year 2001. The company has also clarified that the primary reason for continuing losses at Caraco is the delay in receiving approvals from the US FDA. Most of these products are relatively more complex and the company foresees relatively lower competition for these products in the generic market. Infact, Sun intends to build a clearly differentiated line of generics where margin erosions are not that steep. Over a period of time it intends to move up the value chain to branded generics that offer a products/technology/delivery advantage. Keeping in view the extensive consolidation that is expected to take place in the US generic market, this may be the best option to create long term value.

In the current year too, Caraco is expected to report a loss of US$ 5–6 million. It is expected to break even only in the later half of next year. Sun Pharma has however, not provided for this diminution in the value of its investments in its books.

So far Sun has relied on reverse engineering the products patented abroad. However, post 2005 it would have to develop its own New Chemical Entities (NCEs). The company has already initiated research in three therapeutic areas for developing NCEs. The management however, refuses to specify which are these therapeutic areas.

This aside, in the short term at least (until 2005) the company’s outlook seems promising. Sun Pharma is expected to post a net profit of Rs 1,134 million in the fiscal year 2001 (a 25 percent growth over 2000). The company also expects its topline to continue growing at a compounded annual growth rate 25 percent over the next two years. Bottomline, there is shine in this Sun.


Equitymaster requests your view! Post a comment on "Sun Pharma: Wishing away the clouds". Click here!

  

More Views on News

SUN PHARMA Announces Quarterly Results (4QFY20); Net Profit Down 31.6% (Quarterly Result Update)

May 28, 2020 | Updated on May 28, 2020

For the quarter ended March 2020, SUN PHARMA has posted a net profit of Rs 5 bn (down 31.6% YoY). Sales on the other hand came in at Rs 82 bn (up 14.3% YoY). Read on for a complete analysis of SUN PHARMA's quarterly results.

SUN PHARMA Announces Quarterly Results (3QFY20); Net Profit Down 29.8% (Quarterly Result Update)

Feb 7, 2020 | Updated on Feb 7, 2020

For the quarter ended December 2019, SUN PHARMA has posted a net profit of Rs 10 bn (down 29.8% YoY). Sales on the other hand came in at Rs 82 bn (up 5.4% YoY). Read on for a complete analysis of SUN PHARMA's quarterly results.

SUN PHARMA 2018-19 Annual Report Analysis (Annual Result Update)

Aug 6, 2019 | Updated on Aug 6, 2019

Here's an analysis of the annual report of SUN PHARMA for 2018-19. It includes a full income statement, balance sheet and cash flow analysis of SUN PHARMA. Also includes updates on the valuation of SUN PHARMA.

SUN PHARMA 2017-18 Annual Report Analysis (Annual Result Update)

Dec 20, 2018 | Updated on Dec 20, 2018

Here's an analysis of the annual report of SUN PHARMA for 2017-18. It includes a full income statement, balance sheet and cash flow analysis of SUN PHARMA. Also includes updates on the valuation of SUN PHARMA.

More Views on News

Most Popular

How the 8-Year Cycle Can Help Identify Multibaggers (Fast Profits Daily)

Sep 11, 2020

This is how you can apply the greed and fear cycle in the market to pick stocks.

Why We Picked This Small-cap Stock for Our Hidden Treasure Subscribers (Profit Hunter)

Sep 17, 2020

This leading household brand will profit big time in a post covid world.

This Could Be the Best September for Auto Stocks (Profit Hunter)

Sep 11, 2020

Here's why I think this month could be a great for auto stocks.

What Do the Charts Say About Buying Smallcaps Now? (Fast Profits Daily)

Sep 18, 2020

Everyone seems to be excited about buying smallcaps now...but is it the right thing to do? What do the charts tell us? Find out in this video...

More

Covid-19 Proof
Multibagger Stocks

Covid19 Proof Multibaggers
Get this special report, authored by Equitymaster's top analysts now!
We will never sell or rent your email id.
Please read our Terms

SUN PHARMA SHARE PRICE


Sep 24, 2020 (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

COMPARE SUN PHARMA WITH

MARKET STATS