Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us    

| More

Maintain ADD on Sun Pharma - Cost savings drive the quarterly beat - HDFC Securities

Posted On: 2020-08-04 09:36:39

Ms. Bansi Desai, Institutional Research Analyst, HDFC Securities

(TP Rs 535, CMP Rs 532, MCap Rs 1,276bn)

Sun's Q1 EBIDTA/PAT beat expectations on account of improved gross margin (product mix, productivity) and lower expenses (SG&A and R&D). India business grew by 3% YoY (chronic led). The US business declined 25% QoQ, impacted by muted trends in specialty (in line with expectations) and generics (Taro, price erosion). However, market share for specialty products were maintained at pre-Covid levels. The scale up in specialty is key to drive operating leverage and margins. While the costs pertaining to this business are largely expensed, the revenue traction is yet to be seen. Sun's balance sheet continues to remain strong (repaid ~USD200mn debt in Q1). We increase our EPS estimates by 4%/7% to factor the beat and improvement in gross margin. We maintain Add rating with revised TP of Rs535.

Margin beat: Sun's EBIDTA margin increased by ~487bps on a QoQ basis to 23.3% as improvement in gross margin (down 219bps) coupled with lower other expenses (down 480bps) and R&D costs (down 89bps) offset increase in staff expenditure (+300bps). Adjusting for the exceptional item (DOJ penalty on Taro), the PAT came at Rs11.3bn (down 18% YoY, +42% QoQ, one off revenues in the base).

Leadership in chronic therapies to aid market share gains: Sun's India business grew by 3%YoY (vs. 6% decline for IPM) as growth in chronic segment (10% YoY) offset decline in acute segment (down -20% YoY). Sun launched 10 new products in Q1 and has expanded the field force by 10% as guided in the past.

Specialty business down, but market share maintained: Sun's specialty business declined by 38% QoQ to USD78mn, however, it has been able to maintain its market share at pre-Covid levels. The fall in revenues was largely led by Levulan and Ilumya as these are clinically administered products. Sun expects some specialty products to achieve breakeven by FY22e. We believe traction in Ilumya is key to drive operating leverage and margin expansion. The product's advantage (lower dosing frequency, better safety profile) over peers should prove to be beneficial in the longer term. Contribution from US and non-US markets will be keenly monitored.

Key call takeaways: a) Specialty R&D - 39% of overall R&D in Q1; b) Debt repayment - USD200mn in Q1, net debt (ex Taro) is at USD451mn; c) Halol resolution- FDA has alternate guidelines in place to inspect facilities; d) US generics - price erosion continues, expects product flow to aid base business, Pending ANDA - 98, NDA - 5; e) No change in cost structure in India biz.

Maintain Add, risks: We increase our TP to Rs535 based on 22x FY22e EPS (from 21x earlier). Key risks: Delay in resolution of Halol 483s, higher price erosion in the US, slower ramp up in specialty, adverse outcome on ongoing SEBI probe on whistle-blower complaint.

Shares of SUN PHARMACEUTICAL INDUSTRIES LTD. was last trading in BSE at Rs.528.5 as compared to the previous close of Rs. 519.8. The total number of shares traded during the day was 445809 in over 10099 trades.

The stock hit an intraday high of Rs. 532.15 and intraday low of 517.2. The net turnover during the day was Rs. 234142000.

Source: Equity Bulls

Click here to send ur comments or to

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only., its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.

Other Headlines:

Zydus Wellness - Leadership in niche categories; initiate at BUY - ICICI Securities

Power - Setting the stage - ICICI Securities

Company Update - Elgi Equipments - ICICI Securities

Nano Nivesh - The Anup Engineering - ICICI Securities

RBI OMO announcement of Rs. 10000 crore - Angel Broking

TCS deal win - Sep 24, 2020 - Angel Broking

View on Pre-Monetary Policy by Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank

US FDA approval to Zydus Cadila - Angel Broking

HDFC Securities Institutional Research Desk: Cement Sector Thematic - Spotting the sweet spot

Bharat Forge - Expectation hurdle remains steep - ICICI Securities


Mutual Fund Review - September, 2020 - ICICI Securities

UTI AMC announces IPO date - Angel Broking

Asian Paints - Mr. Amarjeet Maurya - AVP - Mid Caps, Angel Broking Ltd

Britannia Industries - Mr. Amarjeet Maurya - AVP - Mid Caps, Angel Broking Ltd

Hexaware Technologies (Not Rated): Hexaware accepts 475/share as final delisting price - ICICI Securities

CAMS IPO - Day 2 Subscription - Angel Boking

Chemcon Speciality Chemicals - IPO subscribed 12.62 times on second day - Angel Broking

General insurance - Fire, health remain growth drivers, rising Covid claims a concern - ICICI Securities

Supreme Industries - Perfect recipe for rerating; upgrade to BUY - ICICI Securities

Titan Company - Best positioned to gain from faster-than-expected recovery. Upgrade to ADD - ICICI Securities

Sector Update - Telecom - Sep 23, 2020 - ICICI Securities

Allcargo Logistics - Highlights of Blackstone deal - ICICI Securities

I-direct Instinct - Gokaldas Exports

Economy: RBI's trilemma: allows for INR strength - Kotak

HCL Technologies - Company Update - ICICI Securities

Chemcon Speciality Chemicals - IPO Review - ICICI Securities

Angel Broking - IPO Note - YES Securities

TCS - Announcement of its blockhchain based solutions on Microsoft Azure - Angel Broking

Amber Enterpirses acquire Sidwal - Angel Broking

Dixon Technologies - Buy - YES Securities

HCL Technologies acquisition of DWS Limited - Angel Broking

Allcargo Logistics CFO Resignation - Angel Broking

Upgrade to BUY on Gateway Distriparks - Strengthening the balance sheet - HDFC Securities

BUY on ITD Cementation - Execution pickup awaited - HDFC Securities

Allcargo Logistics - Trying to stich through an integrated offering - ICICI Securities

Polymer price tracker - Other polymer (ex-PVC) prices too firm up - ICICI Securities

Angel Broking - IPO Review - ICICI Securities

IPO Review - Computer Age Management Services - ICICI Securities

Company Update - EIH Ltd - ICICI Securities

Gladiator Stocks - Godrej Properties - ICICI Securities

Company Update - Dr Reddy's Laboratories - ICICI Securities

Gladiator Stocks: Pharma Thematic - ICICI Securities

Company Update - Housing & Urban Development - ICICI Securities

Covid Recovery Pulse - E-Way bill generation shows recovery signs with auto volumes flat - ICICI Securities

Quant Pick - UltraTech Cement - ICICI Securities

Lupin & Cipla - Positive News - Angel Broking

Sterling and Wilson Solar Ltd - 106.71 MW order win - Angel Broking

Dr. Reddy's Laboratories - Settles Revlimid litigation in US - ICICI Securities

Natco Pharma - Natco to launch first generic Revlimid - ICICI Securities

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2019