Sun Pharma: Strong Q1 show, settlement of antitrust case pleases investors

Lack of pricing pressure, especially in the US, and debt reduction are other positives

A strong Q1, 2021-22 (Apr-Jun 2021) performance saw the share price of Sun Pharma jump by 10 per cent in a single session. The pharma major had terrific year-on-year (YoY) results, boosted by the low base of Q1, 2020-21. But it also had a pretty good quarter-on-quarter (QoQ) performance versus Jan-Mar 2021 (Q4, 2020-21).

The consolidated results saw operational revenues climbing to Rs 9,719 crore versus Rs 7,585 crore YoY and versus Rs 8,522 crore QoQ. Sales grew by double-digits YoY in all of its major markets. The PAT (ignoring associates and joint ventures) was registered at Rs 1,404 crore versus a loss of Rs 2,426 crore YoY and a profit of Rs 842 crore QoQ. Adjusting for exceptional items in all three periods under consideration, the profits would have been Rs 2,035 crore in Q1, 2021-22, versus Rs 1,207 crore YoY and Rs 1,514 crore QoQ. The PBDIT expanded to Rs 2,772 crore up 59 per cent with operating profit margin at 28.7 per cent.

During the quarter, Sun Pharma spent Rs 592.6 crore on research and development, up 41 per cent from the year-ago quarter. In the last five quarters, Sun has paid down a fair amount of debt strengthening the balance sheet. It has repaid debt of $185 million in Q1, 2021-22 and it has paid down total debt of about $765 million in the last five quarters.

It has also resolved the antitrust case with the US Department of Justice (DoJ), albeit at a cost. This, along with a charge on the impairment of certain intangible assets, meant exceptional one-time charges of Rs 631 crore. The settlement of the antitrust suit is a major relief as it removes the potential for criminal and civil action in future.

Sun Pharma is the largest player in India’s pharma market, with about 8 per cent market share. US sales registered growth of over 35 per cent YoY to $380 million. Indian operations also saw a 39 per cent YoY rise to Rs 3,308 crore. Overall, sales in Emerging Markets accounted for about 17 per cent of total consolidated sales. Formulation sales in Rest of World (ROW) markets, excluding US and Emerging Markets, were Rs 1,368 crore in Q1, 2021-22, up 35 per cent YoY and are approximately 14 per cent of consolidated sales.

Apart from the DoJ settlement and the strong revenue growth, investors were pleased about the fact that the company did not mention pricing pressures, especially in the US. Other majors such as Dr Reddy’s have stated that margins are being affected due to lower US prices. As such, the company seems poised to deliver a stable performance through the rest of the 2021-22 fiscal. The Pharma index has underperformed the Nifty slightly for the past year but Sun Pharma’s jump to a new high might propel it ahead of the broad benchmark.