Global business growth, lower costs a booster dose for Sun Pharma

Company focusing on specialty portfolio to drive US growth

Sun Pharma’s better-than-expected June quarter performance has improved the sentiment on the Street, leading to a 3.71 per cent gain in the stock on a day when broader indices were down over 1.5 per cent.

The US market, which accounts for 36 per cent of revenue, saw a 12 per cent growth in constant currency terms. The sales numbers include contribution from a significant business of generic supply to a customer and Taro Sun’s US subsidiary, which was up 4 per cent. Analysts say growth was robust if one were to exclude the numbers from the Taro business. Sun is focussing on its specialty portfolio to drive US business and dermatology products Ilumya/Ilumetri are gradually gaining traction in the US and Western Europe, according to the company.

The company’s domestic sales, which is 28 per cent of sales, grew 8 per cent year-on-year (YoY). Sun launched 10 new products in the Indian market during the quarter. With rest of the world markets (about 14 per cent contribution to the top line) growing 56 per cent, it offset flat sales growth in emerging markets.

The company’s sales at Rs 8,259 crore was up 16 per cent YoY, higher than Bloomberg consensus analyst estimates of Rs 8,153 crore. A strong US growth and cost controls helped the company report operating profit of Rs 1,881 crore, resulting in a margin of 22.8 per cent. With interest costs down 20 per cent YoY, net profit grew 31 per cent to Rs 1,387 crore, beating the Rs 994-crore consensus analyst estimates.  

Analysts say the good performance was on the back of contribution from most geographies to growth as well as rising margins. Dilip Shanghvi, managing director, Sun Pharma, said performance was in-line with full-year guidance, adding the company would continue to focus on building its specialty business. 

With most of the specialty portfolio in the market now, analysts say the Street will track the ramp up. While analysts at Centrum Broking indicated that Ilumya sales were showing increased traction, the reflection of the same in sales would be back-ended, given the ongoing patient access program and a slow ramp up. Nevertheless, analysts at HDFC Securities say they have upgraded Sun Pharma as their top pick in the large-cap pharma space, following the earlier correction in the stock price.