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Analyst Research Report Snapshot


Sun Pharma (SUNP) - Qtr. Update - Dtd. - February 08, 2013




Axis Capital Limited


11 Feb 2013





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Sun’s Q3FY13 revenue (Rs 29 bn; up 33% YoY) was 5% above our estimate driven by higher Taro revenue (USD 186 mn vs. our estimate of USD 150 mn). EBITDA margin at 45% (flat YoY, up 123 bp QoQ) and adj. PAT at Rs 9.1 bn (up 36% YoY) were in line with our estimates. Raise estimates; maintain BUY (12% upside from CMP) We raise our FY13E/ FY14E EPS by 10%/ 5% to Rs 32/ Rs 35 to factor in US FDA approval of generic Doxil (USD 250 mn market). We believe ramp-up at Caraco, URL and Dusa coupled with US base business growth (142 ANDAs pending) can largely negate risk of price erosion in Taro portfolio. We expect 18% EPS CAGR over FY12-15. We roll forward to FY15E EPS and maintain BUY with TP of Rs 830 (20x FY15E EPS of Rs 42). At CMP of Rs 744, the stock trades at 22x FY14E EPS and 18x FY14E EPS. 100% in Taro not in sight Sun Pharma and Taro have mutually agreed to terminate merger agreement. Sun currently has ~66% stake in Taro and was trying to acquire balance 33% stake for ~USD 600 mn (USD 39.5/ share). However, Taro minority shareholders were demanding a better valuation. 100% acquisition would have been positive for Sun as it would have given complete access to Taro’s cash flows. Lipodox/ Taro led 32% YoY growth in US revenue; India continued to grow faster than industry US formulation revenue was up 32% to USD 276 mn largely driven by Lipodox sales (Q3FY12 had nil Lipodox sales), growth in Taro, and recent launches. Domestic formulations grew 13% YoY (vs. 19% YoY growth reported by AIOCD secondary data). There has been a change in accounting policy on treatment of sales return provision and discounts. Adjusting for this, domestic growth would have been 19% YoY. Regards, Deepak Khetan (Asst VP – Life Sciences) Institutional Equity Research Axis Capital Limited Tel: +91 22 4325 1132

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