Sun Pharmaceuticals Industries - March 2013 Results Preview - Motilal Oswal

- We expect Sun Pharmaceuticals (SUNP) to post 28% YoY growth in core sales to INR27.09b, mainly driven by consolidation of URL and DUSA Pharma. Core US sales (excl. DUSA and URL Pharma) will grow 45% led by Caraco, while RoW markets are expected to grow 27%.

- Core EBITDA is likely to grow 41% YoY to INR11.74b with core EBITDA margin expanding to 43.3%, driven by high profitability from Taro.

- We expect adjusted PAT to grow 20% YoY to INR8.71b. PAT growth will be lower than EBITDA growth mainly due to assumed lower other income over a high base, higher tax outgo and minority interest.

Product price increases by Taro, favorable currency and Doxil US supplies were the key growth drivers in 9MFY13. Of these, Taro's high profitability is not sustainable in the long term and will diminish with increasing competition. While recent acquisitions will add to sales growth, their low profitability will drag overall profit margins, until turnaround is achieved. Though we are positive on the business outlook, rich valuations have tempered our bullishness. The stock trades at 27.5x FY14E and 24.6x FY15E core EPS; Neutral. Inorganic initiatives are a key risk to our rating.

Source : Equity Bulls

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