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Sun Pharma In The News

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Sun Pharma gets a head start


Sun Pharmaceutical Laboratories Ltd's consolidated sales rose by 78% to around Rs 1,400 crore in the June quarter, compared with the year-ago period, as both its domestic and overseas formulations business nearly doubled in size. Though this quarter's growth will not be repeated, Sun's sales guidance of 18-20% for fiscal 2011 appears easily achievable. Revenue needs to grow by just 6% in the remaining three quarters to meet this target, though Sun will not have the benefit of sales from two key products in the US market.
Sun's domestic branded generic product revenue rose by 91% to Rs598 crore in the June quarter, partly due to a low base ef'fect in the June 2009 quarter. Comparable sales growth was around 17%. Sales rose by 17% on a sequential basis as well. The domestic pharmaceutical market has been growing at a fast rate and companies are focusing more on their home mar'ket, especially after suffering setbacks in developed markets.
Sun launched 10 key products during the quarter. Its stand'alone operating profit margin improved to 41% in the June quarter, compared with 37% for fiscal 2010. Overseas formula'tion sales doubled to Rs 1,276 crore. In the US, sales at its subsidiary Caraco Pharmaceutical Laboratories Ltd nearly tripled to $130 million, or around Rs610 crore. Sales rose by 73% on a sequential basis. The firm was selling the generic version of Sa-nofi-Aventis' blockbuster drug Eloxatin ($1.2 billion US reve'nues) in the quarter. After a court order, Sun has stopped sell'ing this drug since 30 June. It has also stopped selling the ge'neric version of Wyeth's Protonix. Thus, US revenues will decline on a sequential basis in the current quarter. Regular product launches will contribute to revenue from continuing products. Sun got approvals to market seven new generic drugs during the June quarter and one more in July from the US FDA.
The company's consolidated operating profit margin rose to 44% in the June quarter, compared with 16% in the year ago period. That was partly due to one-time revenue in the US market and Caraco reporting a profit instead of a loss. Margins have improved on a sequential basis too, but with sequential sales set to dip, the next few quarters will reveal the sustainable mar'gin levels. Another reason for better margins is also lower costs, as Caraco's generic drug applications have fallen. Once that re'verses, costs will increase again.
Sun's results came above expectations, and its share price rose by around 2% as a result. It trades at nearly 25 times its consensus per share earnings estimate for fiscal 2011. That may seem tame considering this quarter's performance but appears fair considering that the sustainable level of earnings is lower. Any positive surprises in the form of new first-to-file drug ap'provals, a resolution of Caraco's ongoing FDA issues, and Sun winning its legal battle for acquiring Israel's Taro Pharmaceuti'cal Industries Ltd will provide key valuation triggers.