Sun Pharma: Stellar show, robust outlook

Strong Para-IV pipeline in the US and above-industry growth in domestic business will drive revenues in FY13

Sun Pharma’s stock closed 2.76 per cent up on a stellar performance for the quarter and year ended March. Taro, its Israel-based subsidiary, clocked in a sales growth of 35 per cent year-on-year (y-o-y) at $145 million and continued driving growth in the quarter. US supplies of anti-cancer product, Lipidox, provided impetus, with US sales ($202 mn) growing 66 per cent y-o-y in the March quarter.

While there are concerns over Lipidox’s temporary supplies and Taro’s ability to drive growth in FY13, Sun’s prospects remain strong. Taro’s growth is coming on the back of the price hikes undertaken for some products and may not sustain, say analysts. Also, sales of Lipidox, which contributed 10 per cent to US sales in the quarter, may drop as Sun was shortlisted by the USFDA for supplying the drug till shortage persisted.

Positively, while Taro and Lipidox may not be growth drivers in the coming days, Sun has a strong Para-IV product pipeline in the US. Of this, anti-cancer Eloxatin and anti-psychotic Lexapro are to be launched on an exclusivity basis in FY13. Further, there are 147 abbreviated new drug applications, or ANDAs, awaiting FDA approval. The base business of Sun in the US is also growing well, according to the management. Products launched in the last six months, such as Gemzar, Taxotere, Cardiazem, Uroxatral and Imitrex, have done well, say Emkay Global’s analysts.

Meanwhile, domestic business, at Rs 877 crore, contributed 37 per cent to overall sales, growing 49 per cent y-o-y in the quarter. For FY12 and even after adjusting one-offs, the core business growth of 21 per cent beats the industry growth of 14 per cent. This trend should continue as Sun, which launched 22 products during FY12, plans to launch 30 others in FY13. Thus, analysts see domestic business growing 18 per cent in FY13. Sales outside US grew 31 per cent y-o-y to $65 million. Overall, consolidated sales, at Rs 2,330 crore, grew 59 per cent y-o-y during the quarter, whereas operating profit margins jumped to 43 per cent and net profit surged 85.3 per cent to Rs 820.21 crore.

While these high growth rates may moderate and the tax rate may also rise in FY13, Sarabjit Kaur Nangra, V-P (research), Angel Broking, observes growth will still be strong while stock valuations remain attractive. Sun, too, expects 18-20 per cent growth in FY13 compared to over 30 per cent in FY12.