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MOSL: SUN PHARMA (Buy) - Results above est. led by Taro - Ex-Taro numbers in line -Retain core EPS




Motilal Oswal Securities Ltd.


14 Feb 2014





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Sun Pharma (SUNP IN, Mkt Cap USD20.5b, CMP INR615, Buy) Alok Dalal (Alok.Dalal@MotilalOswal.com) / Hardick Bora (Hardick.Bora@MotilalOswal.com) Sun Pharmas (SUNP) 3QFY14 results were above estimates. The company reported 50% revenue growth to INR42.9b (in-line), 57% EBITDA growth to INR19.8b (beat of 8%) and 74% PAT growth to INR15.3b (beat of 14%). US formulations growth at 57% YoY in USD terms was marginally above estimates, driven by stronger-than-expected performance at Taro Pharma. Domestic formulations growth continues to outpace industry due to limited exposure to the pricing policy and higher contribution from fast growing chronic therapies. Growth in RoW formulations was in line, while bulk drugs exports grew below estimates due to increased captive consumption. We estimate one-off contribution (from gDoxil, gCymbalta and gPrandin) at INR4.5b to sales, INR3.6b to EBITDA and INR2.7b to PAT for the quarter. Adjusted for these one-offs, we estimate core revenue at INR38.3b (miss of 2%), core EBITDA at INR16.1b (beat of 2%) and core PAT at INR12.6b (beat of 9%). Core EBITDA margin was down 30bp YoY to 42.1%, but 180bp above estimate of 40.3% due to stronger-than-expected performance from Taro. SUNP has increased its sales growth guidance for FY14 to 29% from 25% earlier (in constant currency). Excluding the contribution from Taro, SUNPs sales/EBITDA was in line, while PAT was above estimate due to higher other income and lower taxes. Post 3QFY14 results, we have largely retained our core earnings assumptions over FY14E-16E. We estimate core EPS to witness a CAGR of 26% over FY13-16E. The stock trades at 23.4x FY15E and 20.7x FY16E core EPS. We value SUNPs core business at INR713/share (24x FY16E) and add INR28/share for the Doxil opportunity and INR9/share for other Para IV opportunities to arrive at a target price of INR750/share, an upside of 22% from current levels. Maintain Buy.

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