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Spark Capital: Sun Pharmaceutical Industries - 1Q FY15 review - maintain 'ADD'; TP: 830




Spark Capital Advisors(India) Private Limited


14 Aug 2014





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How does our one year outlook change? We maintain an ‘Add’ rating on Sun post the company’s in-line results in Q1FY15 One-off sales drove ~$40mn sequential increase in ex Taro US sales and contributed to the strong ex Taro margins for the quarter. From Q2FY15 onwards, recent price increases at Taro (which led a chargeback in the current quarter) should drive strong growth and margins Key value driver in the longer-term will be the integration of Ranbaxy and resolution of its manufacturing issues. Launch of generic Diovan ($2bn market, 6 month sole exclusivity) was a key recent positive at Ranbaxy. Monetization of sole FTF exclusivity for generic Nexium will be a key monitorable in the near-term. Sun’s management maintains their expectation of realizing $250mn of revenue and operating synergies by the third year post transaction closure Our estimates are revised to account for recent price hikes at Taro and revised Ranbaxy financials. Management remains positive about closing the transaction by December 2014 Our target price of Rs. 830 is 24x FY16E consolidated EPS of Rs. 34.2 plus Rs. 9 per share for generic Gleevec 6 month exclusivity. ‘Add’ How does our 3 year outlook change? Given the relevance of greater scale in a consolidating industry, Sun’s track record of turning around distressed assets and the opportunity for superior growth post resolution of Ranbaxy’s FDA issues we remain positive on the Ranbaxy acquisition In the US generic market, Sun has consistently demonstrated superior capabilities with respect to launching niche products, achieving strong market share positions for key launches, acquiring companies at attractive valuations and capitalizing on opportunities arising from shortages/price increases Sun’s specialty-focused domestic business has consistently outperformed peers and we expect the outperformance to continue

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