Re: {LONGTERMINVESTORS} Sun Pharma : thread

 SUN PHARMA: Strong quarter; margins surprised positively

(SUNP IN, Mkt Cap USD28.9b, CMP INR667, TP INR925, 39% Upside, Buy)

 

Click here to access detailed report

 

-       SUNP's 2QFY17 revenues grew 21% YoY to INR82.6b (+6% beat), while EBITDA rose 64% YoY to INR31.7b (29% beat). Operating performance exceeded our expectations, led by high operating income of INR5b (due to acquisition of Novartis' (Japan) brands), one-time revenue of USD25m, lower R&D expense at 7.1% (est. of ~9%) and lower other expenditure at INR15b (v/s INR17.2b in 1Q). We believe lower other operating expense is attributed to RBXY integration benefits. PAT came in at INR22.3b (~40% beat), further aided by lower interest cost at INR537m (down >60% YoY/QoQ, partly because of forexgain).

-       EM market shines; gGlumetza & Olmesartan AG launch to drive 2H: US business (~48% of 2QFY17 sales) grew 9% YoY to USD555m (v/s USD510m in 2QFY16 and USD609m in 1QFY17). Sequential decline is attributed to competition in gGleevec and deferment of launch of gGluemtza. We believe AG launch of four Daichi Sankyo products and upcoming gGlumetza launch should drive growth in 2HFY17. Resolution of Halol and Mohali plants will be key growth catalyst (expected in FY17). As restructuring exercise in domestic market was largely over by 1Q, revenue growth has recovered to ~11% YoY in 2QFY17 v/s ~7.6% in 1Q, driven by strong seasonality and launch of eight new products. EM business grew strongly by ~22% YoY, accounting for 15% of total sales.

-       Earnings call takeaways:  (a) SUNP has invited USFDA for Halol re-inspection; resolution could take three months from the time of inspection (resolution expected in FY17). (b) SUNP on track to achieve USD300m from Ranbaxy synergies by FY18E (large part of QoQ decline in other expense could be attributed to this). (c) Ophthalmology team build out is done. (d) Revenue from acquisition of Novartis' (Japan) brands is part of other operating income; (e) maintains R&D guidance of ~9% in FY17 (<7% in 1H).

-       Valuation remains attractive: We believe the current stock price does not reflect key positives, including RBXY integration benefits, Halol and Mohali plant resolution, and investments in specialty business. We see current weakness in stock price as buying opportunity. SUNP remains an attractive Indian play on specialty business in the US. Maintain Buy with a target price of INR925, based on 22x 1HFY19E (v/s 24x FY18E). We cut target multiple in line with peers (due to weakness in US generic business). Increase in FY17/18 EPS by 12%/2% is attributed to strong 2Q, coupled with better margin expectations ahead.

--
You received this message because you are subscribed to the Google Groups "LONGTERMINVESTORSRESEARCH" group.
To unsubscribe from this group and stop receiving emails from it, send an email to longterminvestorsresearch+unsubscribe@googlegroups.com.
Visit this group at https://groups.google.com/group/longterminvestorsresearch.
For more options, visit https://groups.google.com/d/optout.