Sun Pharmaceutical Industries - Strong show to continue; Buy - Anand Rathi

Strong quarter. We expect Sun Pharma to register a healthy 41.6% yoy revenue growth, led by strong growth in the US generics, domestic formulations and emerging markets. EBITDA margin is expected to decline 120bps yoy to 44% on pricing pressure seen in Taro subsidiary. Strong revenue growth and lower effective tax rate would aid 47.3% yoy rise in adjusted PAT. However, we expect EBITDA margin in ex-Taro business to have improved during the quarter with favourable currency movements.

US generics key growth driver. We expect US generics to be the key growth driver, with 60% yoy rise in revenue led by Taro's continued strong performance, the integration of DUSA Pharma and URL generics (URL Pharma recently acquired) and higher sales of Lipodox. Its India formulations business is expected to witness 18% yoy revenue growth, as we don't expect much impact of new pricing policy. ROW formulations would also continue on its strong trajectory, with a 24.4% yoy increase in revenue.

Integration of DUSA Pharma, URL Pharma. During 3QFY13, Sun Pharma acquired DUSA Pharma and URL Pharma, which were amalgamated in 4QFY13. For this quarter, we have factored in revenue of US$20m from DUSA Pharma. We believe that URL Pharma could surprise positively on the revenue and margin fronts on yoy basis due to price rise in Doxycycline.

Our take. We remain positive on the business model and growth outlook of the company. Taro's continued strong performance, further acquisitions and profitability expansion in URL Pharma could offer upside to our estimates. We estimate 20.7% revenue and 21.8% adjusted PAT CAGR over FY13-16, with EBITDA margin decline of 230bps over this period. We maintain a Buy on the stock, with a price target of Rs. 685 based on 25x FY15e earnings. Risks. Currency fluctuations, regulatory hurdles and price erosion in Taro product portfolio.

Source : Equity Bulls

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