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Sun Pharma In The News

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Analysts upgrade Sun Pharma on improving visibility

Sun Pharmaceutical Industries has risen 43 per cent on the bourses in the past year. Even in the last one month, while many peers lost some gains, Sun Pharma continued to out­perform, rising 11 per cent against the Sensex's two per cent fall.

And, analysts see more gains in the offing and the stock's premium valuations to hold, as the company's prospects are improving and growth is expected to be strong. Analysts at Citi observe, "Sun stands out among peers due to a superi­or business mix (leadership in niche areas in India and the US, growing traction in the rest of the world), excel­lent track record on delivery and industry-leading finan­cial metrics."

While the consensus tar­get price for the stock, trad­ing at Rs 799, stands at Rs 842.45 (Bloomberg data), many for­eign research houses have raised their target prices to Rs 9OO and even more in recent days. For instance, Credit Suisse revised its tar­get price to Rs 9OO after Taro, its subsidiary, raised the prices of its products a few days earlier and Citi has raised it to Rs 97O. Taro booster

Taro booster

Of late, Credit Suisse says, Taro Pharma has been able to push through price increases in three products.

The three products, it says, contribute to 35 per cent of Taro's sales. While the research house maintains its 'outperform' rating on the stock, it has raised the target price to Rs 9OO fromRs 840, in part by factoring in higher sales estimates for Taro

Taro has been a key driv­er of Sun Pharma's US busi­ness. At the end of the first quarter of FY13, concerns were raised that the sub­sidiary's profitability might fall on rising competition. However, no such impact has been seen till now.

The December 2012 quar­ter proved to be the best ever for Taro, with revenue at $185 million, beating all estimates.

Gross margins at 75.4 per cent were healthy, while earnings before interest, tax­es, depreciation and amorti­sation (Ebitda) margins at 58.4 per cent improved 443 basis points, compared to the September 2012 quarter. The recent price increases, with a strong product pipeline, will help Taro sustain the growth rates.

Sun has dropped plans to raise its stake in Taro from 66 per cent to 100 per cent and this is being looked at positively. The premiums being demanded by minority shareholders would have led to large cash outgo and lim­ited Sun's ability for more acquisitions.

Recent acquisitions to boost growth

Sun completed the acquisi­tion of US-based Dusa Pharmaceuticals during the December 2012 quarter, strengthening its dermatol­ogy segment. It also acquired the generics business of URL Pharma from Takeda Pharmaceuticals USA. Analysts at ICICI Direct observe that Sun has, time and again, demonstrated an uncanny knack of acquiring unique players to bolster its US portfolio, which now owns a huge basket of 403 ANDAs (abbreviated new drug delivery applications). Caraco, Taro, Dusa and now URL (generics business) are all capable of maintaining the growth tempo.

Monica Joshi at Avendus Capital has raised her fore­casts with the inclusion of Dusa and URL. She estimates the Dusa acquisition to be accretive for earnings per share (EPS) from FY15. And, that URL's vast generic prod­uct basket (280 ANDAs, with minimal overlap) could accelerate portfolio growth and improve Sun's prof­itability. Now that the Taro acquisition (remaining stake of 34 per cent) is being offi­cially put to rest, backed by cash and bank balances of $1.2 billion and shareholders' approval to raise funds, Sun is likely to step up its inor­ganic initiatives, building blocks for long-term sustain-ability, believe analysts.

Overall, analysts at Citi see healthy growth in rev­enue, Ebitda and EPS for Sun (compounded annual growth rate of 18 per cent, 19 per cent and 23 per cent, respectively, over FY13-15). While assum­ing higher competition in generics for Doxil (Johnson & Johnson's anti-cancer drug, with Sun approved by the US regulator to help meet a shortage), from FY15, they still expect healthy growth in the US market (including DUSA and URL), India and other markets. Sun has approval from the US regu­lator to continue selling the generic substitute for Doxil. Analysts see a Rs 3.70 addition to the FY14 EPS due to the sale of the drug.