Sun Pharma - Strong Performance - Maintain Accumulate - EMkay

Sun Pharma's Q3FY12 results - Revenues at Rs21bn (up 34% YoY), EBITDA at Rs9.6bn (up 119% YoY) and RPAT at Rs6.6bn (up 91% YoY)

Strong performance was led by 63% growth in US which was driven by ramp-up in market share of recently launched products, increase in selling prices of select products in Taro and INR dep. Domestic biz grew 17%

- Going forward in FY13E, growth will be driven by Para-IV launch of Lexapro, Plavix, Eloxatin and Stalevo in US and continued momentum in domestic biz

- With strong traction from US market and a stable domestic business - we maintain Accumulate rating with a revised target price of Rs586 at 21x FY13E EPS of Rs28

Taro and INR dep boosted performance

- US formulations (contributed 32%) grew by 63% YoY in INR and 47% in USD to US$208mn principally driven by

- In Taro, increase in market share of select products led to 37% growth in USD terms which going forward is not sustainable. Overall volume growth was flat

- In Sun's base biz, new product launches in last 6 months such as Gemzar, Taxotere, Imitrex (MS 10%), Cardizem & Uroxatral led to 59% growth

- Domestic branded formulations (contributed 32%) grew 14% YoY on back of leadership in chronic portfolio and 6 new product launches this quarter. Excluding discontinued third party business this segment grew by 17% YoY

- EBITDA margins increased by 1741 bps YoY and 355bps QoQ to 44.9%, due to INR depreciation and higher selling prices of select products in Taro which is not sustainable

- PAT grew by 91% YoY to Rs6.7bn clocking an EPS of Rs6.5 led by lower tax rates and higher interest income

Future growth drivers

- Going forward in FY13E, there will be volume led growth in US market driven by Para-IV launch of Lexapro, Plavix, Eloxatin and Stalevo where the company has already settled with innovator

- Domestic formulation is expected to grow at 17% on back of ~30 product launches in FY12. Sun has already launched 23 new products till date in the domestic market.

Valuation

We expect Sun Pharma to report 32% growth in revenues in FY12E and 20% growth in FY13E. EBIDTA margins are expected to improve from 34.8% in FY11 to 34.9% in FY12E and 36.4% in FY13E. Earnings will grow by 25% CAGR over FY11-13E. We revise our target price to Rs586 (21x FY13E earnings of Rs28). At CMP, the stock trades at 24x FY12E and 20x FY13E EPS. Maintain Accumulate.

Source : Equity Bulls

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