Sun Pharma Q2 net slips 46% to Rs 1,107 cr on revenue decline

Compliance issues and currency fluctuation impact earnings

The profits of Sun Pharmaceutical Industries declined 46 per cent to Rs 1,107 crore in the second quarter of the financial year 2016, compared to same period last year. This follows a 15 per cent drop in revenue.

Net profit in the second quarter last year was Rs 2,050 crore.

Compliance issues in its Halol plant, pricing pressure and weak sales growth of its US subsidiary Taro resulted in the fall in revenue.

Consolidated revenue fell 15 per cent to Rs 6,837 crore as against Rs 8,039 crore in Q2 FY 15. Its Ebidta margin declined to 28 per cent from 38 per cent in second quarter of the last fiscal.

In July, the company had issued a warning stating that revenue in this fiscal would remain flat or decline and results would be impacted because of the restructuring costs and write offs, following its acquisition of Ranbaxy. The results statement, however, did not mention any exceptional items or write offs in the second quarter.

Domestic sales were flat and sales from all other geographical segments dipped in the quarter under review.

Sales from the US market, which accounts for almost half of the company’s revenue, were down 28 per cent to $510 million.

In its results notification, Sun Pharma said the sales were hit by competitive pressure on some products and temporary supply constraints arising out of remediation efforts at its Halol plant. It added that Q2 FY 15 results had benefitted from 180-day exclusivity on Valsartan tablets resulting in a higher revenue base.

In the domestic market, its revenue grew one per cent to Rs 1,819 crore.

“Sales growth in the domestic market was adversely impacted due to conscious efforts to control overall inventory with the trade. In addition, sales in the acute segment were lower due to withdrawal of bonus offers and a relatively soft season for the acute segment,” the company said. Sales from emerging markets were down because of currency fluctuations and its decision not to participate in low-margin business.

“Our performance for the quarter and the first half of FY16 has been impacted by lower sales growth, volatile currency movements and supply constraints. Nonetheless, we continue to invest significantly in enhancing our specialty and complex generics pipeline. Integration of Ranbaxy is progressing well and while some of the costs have been incurred, the benefits will be visible going forward. We also continue to evaluate opportunities to expand our global footprint,” Sun Pharma Managing Director Dilip Shanghvi said in a statement.

Earlier in the year, the company revised Ranbaxy synergy benefits to $300 million from procurement, productivity, R&D and revenue.

At the company AGM last week Shanghvi said the “remediation process at the erstwhile Ranbaxy facilities, which were found to be non-compliant in the past, also continues as per the plan.”

While significant efforts to make these facilities compliant are on, this will be a time-consuming process, he added.  Ranbaxy’s financial numbers were integrated with Sun Pharma in March. Analysts were estimating a flat revenue and margin growth on a sequential basis sales because of the ongoing compliance issues and weak sales in the emerging markets. Revenue in the second quarter was up 4.6 per cent over the first quarter.