Sun Pharma - Q3FY12 Result update/Estimate change - Centrum

Excellent performance due to Taro

Sun Pharmaceutical Industries (SPIL) Q3FY12 numbers were above our expectation due to excellent performance of Taro and good growth in the domestic business. SPIL's total revenues grew by 37%YoY, EBIDTA margin by 1670bps and net profit by 91%YoY. The company's domestic business grew by 17%, US formulations by 107% and RoW formulations by 27%YoY. Taro has increased the prices of selected products in the US market resulting in splendid performance. We reiterate Buy for the scrip with a revised target price of Rs620 (based on 25x FY13 EPS).

- US business reports excellent growth: SPIL's US formulation business (48% of total) reported 107%YoY growth from Rs6.38bn to Rs10.40bn. Its RoW formulation business (13% of total) grew by 27%YoY from Rs2.21bn to Rs2.81bn. Its domestic formulations business (32% of total) grew by 17%YoY excluding third party manufacturing.

- Sharp improvement in Margin by 1670bps: SPIL's EBIDTA margin improved by 1670bps from 28.2% to 44.9% due to overall reduction in costs. Material cost declined by 1010bps from 27.7% to 17.6% of total revenues due to the change in product mix. Personnel expenses were lower by 420bps from 17.6% to 13.4% due to strong sales growth. Other expenses declined by 250bps from 26.5% to 24.0%. Its other income declined from Rs258mn to Rs-863mn due to MTM losses. The company's net profit improved by 91%YoY from Rs3.50bn to Rs6.68bn.

- Strong product pipeline for US market: The company has a strong product pipeline for the US market. SPIL along with Taro has filed 389 ANDAs with US FDA, of which 241 have been approved and 148 are pending approval. The company has filed 222 DMs with US FDA and has received approval for 150 products and 72 products are awaiting approval.

- Taro posts excellent results: SPIL's subsidiary Taro Pharma has reported excellent results for Q4CY11. Its net sales grew by 44%YoY from $102.6mn to $148.1mn. EBIDTA margin improved from 21.1% to 50.2%. However, Taro sales and profits may not be sustainable due to the increase in selling prices of selected products in the US market during the quarter. Taro has successfully executed its strategic plans and changes during the year and its performance across all markets was very positive. During CY11, Taro filed 3 ANDAs and received approval for 7 ANDAs. It has 23 ANDAs and one NDA pending approval with US FDA.

- New products to drive growth: SPIL has launched dry powder inhaler (DPI) in the domestic market. This product gives the same results at half the dose compared to other products in the market. The company has launched sitagliptin+metformin inlicensed from MSD and has achieved 10% MS. These products have received good response and are likely to become future growth drivers.

- Revised guidance: The management has revised the sales guidance for FY12 from 28-30% to 32-34% due to good growth in Q3FY12. However, they have stated that the current growth rate is not sustainable.

- Reiterate Buy: We have revised our EPS estimates upwards for FY12 and FY13 by 15% and 5% respectively. We expect the company to benefit from good growth of Taro, healthy growth in the domestic market and rich pipeline of products for the US market. At the CMP of Rs555, the stock trades at 23.6x FY12E EPS of Rs23.5 and 22.4x FY13E EPS of Rs24.8. We reiterate Buy with a revised target price of Rs620 (based on 25x FY13E EPS).

Source : Equity Bulls

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