Led by strong all-round show, India’s largest drug maker Sun Pharmaceutical Industries beat the street estimates once again. The results for the quarter ending December 2013 (Q3), which came during market hours, saw the stock rise to Rs 623.50 before closing at Rs 615 up 0.6 per cent on a day when Sensex fell 1.25 per cent. The strong consolidated performance was driven by US formulation sales.
Revenues increased 50 per cent to Rs 4,287 crore, Ebitda margin came in at 46.7 per cent and net profit surged 74 per cent to Rs 1,531 crore, compared to the year-ago quarter. Consensus had estimated sales at Rs 4,136 crore, Ebitda at Rs 1,831 crore (actual was Rs 2,001 crore) and net profit of Rs 1,310 crore. Even if one adjusts for the jump in other income from Rs 67 crore last year to Rs 134 crore in Q3, the profits are still ahead of estimates. On the back of this performance, Sun’s management has once again raised their FY14 sales growth guidance from 25 per cent to 29 per cent (in constant currency). “The revised guidance takes in to account the performance achieved in 9M FY14, higher base of Q4 FY13 on consolidation of acquisitions as well the risks associated with increase in competition for some products,” said the company.
With a strong product pipeline of products for the US market, good domestic growth led by specialty segments which faces lower pricing competition, as well as good rest of the world sales, the growth momentum is likely to be sustained. Though some analysts like Sarabjit Kaur Nangra at Angel Broking feel sustaining such high margins may be a challenge and the stock is trading at reasonable valuation (PE of 22-24) thereby leading her to have a neutral rating on the stock, many others as Ranjit Kapadia at Centrum Broking believe margins may stabilise at 44 per cent and see good upside potential for Sun’s stock. Kapadia is likely to upgrade his target price of Rs 770. Out of 20 analyst polled by Bloomberg since January this year, 13 have ‘Buy’ ratings and seven ‘Hold’ with consensus target price of Rs 666.
Sales in the US, which accounts for 62 per cent of Sun’s consolidated revenues, grew by 57 per cent in dollar terms to $434 million. The same may not be strictly comparable as this includes contribution of its subsidiary, URL acquired in December 2012 quarter. In rupee terms, the growth was close to 80 per cent. Despite challenges being faced by domestic industry due to the new drug pricing policy, Sun Pharma posted an outstanding 20 per cent growth in branded generics revenues to Rs 947 crore.
Sun's Israeli subsidiary Taro, which largely sells in US markets, posted net profit of $115 million (Rs 713 crore), up by 30 per cent year-on-year. Its sales at $213 million (Rs 1,320 crore) were up 15 per cent. Taro continues providing strong boost to Sun’s US sales while other subsidiaries URL and DUSA are seeing regular traction.
Taro’s performance is positive as during the March and June quarters of FY14, it had seen single-digit growth due to increasing competition. The product launches and price hikes thereafter have helped. Analysts at Nomura add that IMS data so far suggest stable sales at Taro. They expect Taro sales to largely remain at the current level, until new products are introduced. Nevertheless, Taro has a strong pipeline of products. ANDA filings gathered momentum during the quarter. Taro filed six ANDAs during the quarter. With this, a total of 25 ANDAs are pending approval. Cumulatively, ANDAs for 468 products have been filed with the USFDA (as on December 31).
Dilip Shanghvi, managing director, Sun Pharma said, “Our performance reflects the focus on execution of our strategy. We are developing a differentiated and specialty business and continue to evaluate opportunities to enhance our global presence.”
Hitesh Mahida at KR Choksey says that excluding Taro, Sun saw a staggering growth of 133.6 per cent year-on-year to Rs 1,635 crore, which is encouraging.
Analysts feel that US growth is being driven by exclusivities on anti-diabetic Prandin, anti-cancer drug Doxil exclusivity, market share gain in Parkinson treatment drug Stalevo and price increases in Taro and URL. The company, in the quarter, has got approval for generics of blockbuster brand Cymbalta (anti-depressant drug). This is likely to drive revenues going ahead. Besides its earlier launched generics as those of Parkinson treatment drug Comtan has seen a rise in market share of 46 per cent, a gain of 380 basis points month-on-month according to the IMS data.