Sun Pharma – Strong revenue/earnings visibility - Religare

Growth led by US, India: SUNP's revenues would grow at a 21% CAGR over FY13-16E driven by:

- Sustenance of pricing power in Taro (32% of sales), where limited new entrants would drive 7% growth p.a.

- Niche launches from a pipeline of ~131 pending ANDAs including Yaz, Temodar, Gleevec, etc. Expect the US biz (ex-Taro, URL, Dusa; 24% of rev) to grow at ~23% CAGR over FY13-16E.

- Re-introduction of URL portfolio (4% of sales, 20 launches in 2-3 yrs) and continued scale-up in Dusa (possible line extension; 3% of sales).

- Domestic biz (26% of sales) remains on strong footing, expect 18%+ growth to sustain over FY13-16E.

Industry-leading profitability to persist: EBITDA margins to sustain at ~43.5% as low-competition launches in US would likely offset pricing pressure in Doxycycline (Sales US$100m). Expect limited impact of the new pricing policy (DPCO) at Rs250mn. Taro's profitability assumed to taper (48% vs. 56% in Q2FY14).

Valuation premium justified: Valuations at ~15-20% premium to peers are justified, noting (a) high growth (24% vs. 20% peer avg.); (b) industry-leading margins; (c) improving RoIC (41% in FY16E vs. 38% now); and (d) strong Balance Sheet (net cash of US$1bn+).

Key risks: (a) Regulatory delays affecting key US launches, (b) Unexpected early competition in key products, and (c) potential M&A-related risks.

Source : Equity Bulls

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