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Sun Pharma – Strong quarter, rich valuations to sustain; upgrade to Buy - Anand Rathi
Posted On : 2013-08-13 05:24:18( TIMEZONE : IST )
Results beat estimates. Sun Pharma's 1QFY14 revenue grew 31.8% yoy, to Rs. 35bn, a bit short of our expected Rs. 33.1bn. At 44.3%, EBITDA margins were lower by 150bps yoy (but inline with our estimated 44%), due to higher R&D spend and other operating expenses. Strong revenue growth and slightly better margins along with a lower effective tax rate helped adj. PAT grow 56% yoy, to Rs. 12.4bn, exceeding our estimate of Rs. 11.2bn. It reported one time exceptional loss of Rs. 25.2bn, pertaining to Protonix litigation payments.
US generics – key growth driver. The strong revenue growth was driven by robust performances in US generics and formulations (ROW). US revenue surged 28% yoy, to US$364m despite higher base, as it benefitted from the integration of URL Generics and DUSA Pharma, with Lipodox also contributing handsomely. Domestic formulations grew 11% yoy (on a comparable basis) after adjusting for extra sales booked in 4QFY12 which impacted 1QFY13 sales. Emerging market formulations grew 19% yoy to US$81m. The API business reported a decline of 3.7% yoy on a high base and was inline with our estimates.
Our take. We believe that the current performance stemmed largely from outperformance in US generics. Going ahead, we expect US and India to be key revenue drivers for Fy13-15(19.5% and 18.4% CAGR respectively). As favourable currency environment, sustained performance in US generics would lead to improvement in revenues as well as margins, we raise our FY14 and FY15 revenue estimates 3.8% and 3.2% respectively, and adjusted PAT 9.5% and 7.8%. The sharper increase in PAT estimates stems from the larger contribution from Lipodox and an improvement in margins. Overall, we expect 20.3% revenue and 20.6% adjusted PAT CAGRs over FY13-15.
The stock trades at 23.3x FY14e and 20.7x FY15e revised earnings. We upgrade the stock to Buy from Hold, with a revised price target of Rs. 586 based on 24x FY15e earnings (earlier Rs. 503). Risks. Currency fluctuations, regulatory hurdles.
