Sun Pharma: Outlook remains positive

A day after Sun Pharma saw its net sales grow 58% and net profits which were up 51% (adjusted for Protonix litigation expenses) the stock did not react much.

Rather the stock closed 1.34% down on the bourses at Rs 599.65 levels. Part of the reason can be attributed to the decline in the Healthcare index.

The gains in Sensex by 1.02%, was led by Metals, Power Capital Goods, Realty, Banking and Auto indices that gained 1.41-2.97% where as Healthcare index lost 0.39%.

Besides some analysts have raised concerns on Sun’s US growth. Analysts at Nomura had estimated stronger sequential growth in ex-Taro business due to launch of Prandin under exclusivity. However Sun’s US business increased by $55.6 million sequentially, of which Taro contributed $52.1 million.

Further they add that revenue guidance for FY14 was revised up to 25% from 18-20% in constant currency terms. Assuming the currency movement thus far in FY14, the guidance implies a growth of 35% growth in rupee terms versus their estimate of 47%, which they feel is conservative and hence have a neutral rating on the stock. Angel Broking has maintained a neutral rating.

However other analysts such as Hitesh Mahida at Fortune Equity and Ranjit Kapadia at Centrum Broking remain positive on the stock. In fact Mahida has raised his target price from Rs 618 to Rs 717 while Ranjit Kapadia is upgrading his target price from Rs 748. Kapadia says that the management’s raising its guidance shows their confidence on company’s prospects in the second half of FY14.

 

 

Mahida observes that the US sales are still growing well even on a large base and the traction is likely to continue. He believes that the cancer treatment drug Doxil sales is likely to continue gaining further traction over next twelve months. Johnson and Johnson, another supplier is almost completely off the market in Doxil as its partner Ben Venue has been facing compliance issue at its facility.

Though anti-bacterial Doxycycline has been moved out of the drug shortage list, however sales are likely to see continued traction for some time. Hikma has recently increased its generic sales guidance for 2013 by $30 million. Since market tightly controlled between Actavis, Sun and Hikma, Doxycycline supplies from URL pharma (subsidiary of Sun) should also see upside for some time before prices start tapering down.

During the month of October’13 URL has gained 46 bps market share in Doxycycline Hyclate tablets and capsules, says Mahida. He further estimates anti-diabetic product Prandin launch on exclusivity to see $30 million in revenues and $15 million in profits during first six months of exclusivity.

Amongst other products Sun is also benefitted in Parkinson treatment generics of Comtan and Stalevo, due to Wockhardt’s import alert, gaining 121bps and 501bps market share respectively in the month of October’13.

Further, Taro’s prospects remain strong. For the week ended November 1, Nomura based on IMS data says that Taro’s market share in Nystatin Triam Cream is stabilizing at 60% up 70 bps week on weak, despite competition.

Also in the month of October Taro’s new drug application launches in the Dermatology segment; Topicort spray and Calcitreine ointment, have continued to gain share in their respective segments adds Mahida.