Taro continues to add to Sun's shine

Beats analyst expectations on the margin front

Sun Pharmaceutical Industries’ subsidiary, Taro, driving the company’s growth for long, posted better than expected operational numbers indicating that it will be able to sustain the trend.

Taro’s sales at $238 million (Rs 1,450 crore) marked a growth of 11 per cent in dollar terms. However, despite news of competition eroding into margins erupting time and again, Taro posted margins of 67 per cent, up 362 basis points over the December’13 quarter and 221 basis points, sequentially.

In the quarter, while some products did show price erosion, the same was negated by others. Analysts at Nomura, referring to IMS data for December'14, say that some products that witnessed price increases in the past have declined on a trailing three-month basis. Skin treatment Clobetasol propionate cream and ointment fell 29 per cent and 14 per cent, respectively, while Nystain Triam cream declined by 15 per cent. However, some other products like epilepsy treatment drug Carbamazapine XR tablets grew 39 per cent year-on-year.

Hitesh Mahida at Antique Stock Broking says Taro results were above expectations on the margin front. While earnings before interest, tax, depreciation and amortisation improved 17.6 per cent to $159 million, net profit at $142 million grew 23.5 per cent, compared to the year-ago quarter.

The company has filed a new drug application in the US, taking pending approvals to 30. Analysts at HSBC maintain the US outlook for Sun remains robust. The Street is looking at the merger of Ranbaxy to get through.

Sun Pharma stock scaled to an all-time high of Rs 965.90 on February 5, as the US Federal Trade Commission gave conditional approval for the Sun-Ranbaxy merger. Since the Indian competition commission had already approved the deal, it has paved way for the merger.

Analysts at HSBC add the merger should close in the June 2015 quarter, with possible material synergies emerging in FY16. The company has guided for $250 million in synergies over three years from the commencement of merger.

In this backdrop, it's not surprising that analysts as Mahida are bullish with a target price of Rs 1,086, while those at Sharekhan have a target of Rs 1,018. Analysts will review their target prices after Sun Pharma’s results on Saturday.