 "Sun Pharma's results, forecast disappoint")
Sun Pharmaceutical disappointed the Street on multiple fronts. Expectations in the March quarter were high on the US launch of cancer drug generics and a strong show by its US subsidiary Taro (reported on Friday).
Consolidated revenues at Rs 7,414 crore, up 21 per cent year-on-year, were short of Bloomberg consensus estimate of Rs 7,765 crore. Earnings before interest, taxes, depreciation, and amortisation at Rs 2,300 crore, higher than Rs 2,169 crore in the December quarter (Q3) and more than Rs 792 crore a year ago, were lower than estimate of Rs 2,825 crore. At the net level, despite forex losses of $47.5 million, at Taro profit at Rs 1,714 crore was better than Rs 1,417 crore in the December quarter and Rs 889 crore a year ago, but short of Rs 1,909-crore estimate.
Slow growth across many markets was the key reason for the lower-than-expected revenue number. Sales in the US (52 per cent of overall revenue) at $580 million grew 19 per cent over year. The launch of Gleevec generics in February boosted Sun's US growth and so did Taro’s (45 per cent of US sales) stellar numbers.
But ICICI Securities says adjusting for robust numbers of Taro and Gleevec exclusivity, the US numbers were subdued. Domestic sales at Rs 1,807 crore were up 17 per cent, but sales of smaller contributors such as emerging markets remained flat and rest of the world sales fell six per cent.
The revenue growth forecast of eight-10 per cent (in spite of four months of exclusivity sales boost remaining from Gleevec generics) hit sentiment. The stock fell 6.22 per cent on Tuesday to Rs 762.
Sun is seen benefiting from its strong product pipeline for launch in the US and from acquisitions. But, concerns over Halol plant clearance by the US remain. The low revenue growth forecast for FY17 is an indication of the near-term challenges Sun is facing. On the margin front, too, even as management expects $300 million synergy benefits by FY18, the integration of Ranbaxy will be an overhang in the interim.
In this backdrop, while analysts remain positive on Sun, they have marginally lowered their earnings estimates and target price (to Rs 875 from Rs 940). Positively, Sun will evaluate a proposal to buy back shares on June 23. While this move can support its stock price, higher growth rates and resolution of US FDA issues are more crucial.
