Sun Pharmaceutical Industries Limited - News flow continues to get better - Antique

Two developments last week strengthened the outlook for Sun Pharma's earnings trajectory. The approval for Prandin and improved outlook for Doxycycline are significant earnings boosters for Sun Pharma's near to medium term operational performance. The favorable currency outlook has to some extent offset taro's earning contributions inevitable moderation. The confluence of these factors raises our confidence in Sun and we are raising our estimates and Price target to reflect the positive impact of the above stated factors.

Doxycycline emerging as key upside surprise.

The improved outlook for Doxycycline highlights strength of acquired companies (URL) product pipeline. While the initial spurt in the volumes of this antibiotic was attributed to a temporary supply shortage, Competitor commentary (Hikma Pharmaceuticals Plc earnings guidance raised twice in 2 months) seems to suggest that the upside from this key drug is also driven by increased demand from varied therapeutic use. We estimate USD75mn revenue contribution from this opportunity. Refer our note dated 3rd April 2013 (URL a Taro encore).

Prandin a Key Drug

Sunpharma has received final US FDA approval for its ANDA for generic version of Prandin®, Repaglinide tablets. Repaglinide tablets, 1 mg and 2 mg are therapeutic equivalents of Novo Nordisk's Prandin® tablets. These tablets have annual sales of approximately USD 200 million in the US. Repaglinide tablets are indicated as an adjunct to diet and exercise to improve glycemic control in adults with type-2 diabetes mellitus. Sun Pharma's subsidiary, being the first-to-file an ANDA for generic Prandin® with a para IV certification, is eligible for a 180-day marketing exclusivity in the US. Impact on Sun Pharma FY14 Earnings is Rs.1.2/share based on the below mentioned assumptions. This constitutes 3% of FY14 earnings. The fact that all product opportunities for Sun Pharma continue to pan out without any delays justifies the valuation premium.

Valuation and Outlook

Although management has guided for 18-20% revenue growth for FY14, We have accounted for 25% growth for FY14 and 17% revenue growth for FY15 on back of increasing approvals for key products and improved outlook for some of URL's key product list like Doxycycline which can act as a significant earnings boosters for Sun Pharma's near to medium term operational performance. Our FY15 based price target INR1166 (24 x FY15EPS) implies a 5% upside from current levels. Our optimism on Sun Pharma is predicated on the following 1) Superior Revenue Mix; 2) Domestic market growth rate to be higher than the market @ 18%; 3) Higher R&D expenditure productivity 4) Competition in Taro products leading to price normalization; 5) US pipeline prospect looks good; 6) Increased visibility in US. on account of upsides from URL and DUSA acquisitions.Given the robust outlook on all business segments and best in class operational metrics, we believe valuation premium will sustain.

Source : Equity Bulls

Keywords