Sun Pharma - Results Outperform: Maintain BUY - Karvy

Sun's revenues increased by 33.6% YoY to Rs. 28655mn in Q3FY13, as against our estimates of Rs. 26477mn. US outperformed on back of price increases in Taro Pharma, US sales and DUSA revenues for the quarter. Operating margins were better than estimates, comparable to Q3 FY12. Profits grew by 32%YoY at Rs. 8813mn in Q3FY13. Company does not wish to make Taro a 100 % subsidiary, hence minority interest will continue. We downgrade earnings on account of same but maintain BUY.

Quarter Details: The Company's US Formulations business grew 43.7%YoY to Rs.14946.2mn (our expectations Rs.12851mn), while its Domestic formulations rose 13%YoY to Rs. 7885mn (our expectations Rs.8050mn). EBITDA is at 44.7% in Q3FY13, higher than our estimate of 39.6% due to higher gross margins and lower other expenses. Net profit is at Rs.8813mn as against our estimate of Rs 7595mn (up by 31.8%YoY). Tax is at 18.6% compared to 7.4% last year for the Quarter. Sun has converted the partnership into a Wholly Owned Subsidiary (WOS).

Outlook & Valuation:

We upgrade our revenues by 6.2% to Rs 112 bn in FY13 and by 3.2% to Rs 125 bn in FY14 due to price increases taken by Taro Pharma, incorporation of Dusa and scale up in US business. We upgrade our EBDITAM from 41.8% to 45 % in FY 13E and from 40.1 % to 42.5 % in FY14E. We upgrade our EPS estimates for FY 13E by 9.2 % to Rs 33.2 and downgrade by 6.6 % to Rs 34.6 for FY 14E due to Taro minority interest. Due to improving revenue and margin visibility we value the core business at a price of Rs 796 based on 23x FY14E. Due to better scalability anticipated in URL Pharma, we upgrade revenues by 20 % to USD 120 mn and value it at Rs 29 based on 5x P/S. We marginally downgrade our price Rs 825 but maintain BUY.

Risk : Downgrade in Taro revenue and margins due to competitive intensity would impact the company's earnings.

Source : Equity Bulls

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