Sun Pharma's core business grows at a steady pace in Q1

Despite this quarter's loss, FY14 earnings may be upgraded

Just as HDFC Bank has earned a formidable reputation for itself by reporting steady growth profitability quarter after quarter, Sun Pharma is doing a similar thing in the pharmaceutical sector.

Even as experts are beginning to doubt the sustainability of the sector’s double-digit growth rate, Sun Pharma continues to surprise the market. Compared to the corresponding period in the previous year, sales of the company’s core business have grown 31 per cent to Rs 3,482 crore in the first quarter of FY14 and net profit by 56 per cent to Rs 1,241 crore.

Undoubtedly, the earnings will take a hit in the current quarter, as it has provided Rs 2,517 crore to settle the ongoing litigation with Pfizer in a US court.

According to the settlement, Sun had to pay $550 million to Pfizer, for which the company had earlier provided Rs 584 crore in the second quarter of FY13. The rest of the provision has been made in the current quarter.

If one excludes this one-time payment to settle its litigation, the operational performance cannot be faulted. It has reported a robust growth in all its key markets. Even as most other Indian pharmaceutical players are seeing a flat growth or a decline, the company’s branded generic sales in India has grown by 44 per cent to Rs 849 crore in the first quarter, largely due to last year’s poor base.

In the fourth quarter of FY12, the company had pre-booked sales, which is why the first quarter of FY13 was weak. Even then, adjusted sales growth of the domestic formulation business stands at 11 per cent. The average growth reported by the industry is eight per cent, which makes Sun Pharma the outlier.

Analysts were expecting the company to report slightly muted numbers after Taro, its Israeli subsidiary, reported its numbers earlier in the week but Sun seems to be going strong. The company’s US business grew 28 per cent compared to last year and international formulation sales expanded 19 per cent.

The company has also managed to maintain margins at 44 per cent, contrary to the market expectations. Going by the first quarter numbers, analysts believe upgrades are likely, as the firm could report a full year profit after tax of Rs 4,800 crore.