US growth & domestic business boost Sun Pharma's numbers

With India sales also growing 21%, the company's net sales and profitability beat Street expectations comprehensively

Sun Pharmaceutical reported a good set of numbers for the quarter ending September, led by strong US sales growth boosted by its subsidiary Taro. The company saw US sales contributing 61 per cent to overall revenue growth of 15 per cent year-on-year (y-o-y). In rupee terms, the growth came at around 12.5 per cent y-o-y to Rs 2,912 crore. With India sales also growing 21 per cent, the company’s net sales and profitability beat street expectations comprehensively.

Net sales at Rs 4,750 crore grew by 13 per cent on a y-o-y basis, ahead of Bloomberg consensus analyst estimates of Rs 4,630 crore. Operating profit at Rs 2,161 crore (up 21 per cent y-o-y) in the second quarter was also ahead of Street expectations of Rs 2,118 crore.

The company, however, disappointed on net profit  due to lower other income. It reported net profit of Rs 1,572 crore, up 15 per cent  y-o-y, slightly lower than street expectation of Rs 1,594 crore.

“Our Q2 performance was strong and continued to achieve high level of profitable growth, in-line with our expectations,” Sun Pharma managing director Dilip Shanghvi said.

Its Israeli subsidiary Taro that reported its results on Monday had hinted at a better show by its parent in the second quarter sending its stock price to an all time high of Rs 932. While Taro’s volume growth was flattish, the sustained benefit of price hikes and an improving product mix led to all-time high revenues of $251 million ((52 per cent of Sun’s US revenues).  In rupee terms Taro contributed Rs 1518.5 crore up 19.85 per cent y-o-y. Nevertheless ex-Taro Sun’s US revenues at Rs 1545 crore could grow just 4.6 per cent year-on Year and declined 8.5 per cent sequentially which was a dampener. The anti-bacterial Doxycycline  sales saw some decline indicated the company management during the concall post results.

Domestic growth at 21.3 per cent was ahead of industry growth of around 11 per cent contributed Rs 1151.8 crore to Sun's consolidated revenues during the quarter. Rest of the World business too grew good 8.9 per cent to Rs 536.2 crore.

Moving forward while Taro boost is likely to continue as its dermatology range faces limited competition in the US market. Analysts at Religare say that product development and approval timeline would limit new entrants providing it with some pricing power for at least few more quarters. In the meantime, Taro has intensified product development over last with 35 ANDAs filed in last four years and 30 pending. This will aid its revenue growth over medium term.

The company plans to complete Ranbaxy acquisition by end of current calendar year boosting its revenues and profits next year. The company however indicated that in case of some delay in approvals the completion of acquisition could be slightly delayed.

Ranjit Kapadia at Centrum broking said that US sales ex Taro have disappointed and he has Hold ratings on the stock, as does Sarabjit kaur Nangra at Angel broking. The consensus target price for the stock as per analysts polled on Bloomberg since October’14 stands at RS 898 for stock trading at Rs 908.60.

For its, licensing deal with Merc & Co Inc for the psoriasis drug, the company would spend about $ 250 million over five years for clinical trials. At present, the drug is in late-stage trials for use in chronic plaque psoriasis.

Meanwhile, the company also said its board has approved merger of Sun Pharma Global Inc, a wholly owned foreign subsidiary of the company, with itself, with effect from January 1, 2015.