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Research
Sell – Sun Pharmaceuticals Industries Ltd - No clarity yet on the recurring profitability - PINC Result Review
Posted On : 2010-08-08 00:59:51( TIMEZONE : IST )
No clarity yet on the recurring profitability
Sun Pharma's Q1FY11 results were driven by one time sales of generic Eloxatin in US. This will be the 11th straight quarter when numbers have been skewed due to sales from exclusivity products. Our estimates suggest half of the profits for Q1FY11 came from Eloxatin. We tweak our recurring earnings estimates marginally and roll forward to Sept'2011 earnings. At 22x Sept'11 recurring earnings, our target stands at Rs1500/share and we maintain SELL.
India/Emerging markets growth continues; US picking up
India formulation sales grew 17% adjusting for the one time sales (Rs2bn) in Q4FY09 which had an impact on the Q1FY10 sales. Non US international formulations showed a robust double digit growth in local currency.
Beyond the reported numbers
We estimate sales of US$95-100mn for the generic Eloxatin in US at net margins in excess of 50%. Excluding such sales, recurring sales for Q1FY11 stood at Rs9.7bn and Net profit of Rs2.6-3bn and an EPS of Rs13-14/share. In our view, half of Q1FY11 profits came from, generic Eloxatin.
Key Conference call takeaways
1) The management indicated that the process of re-activating the Caraco facility approval will be on a product by product basis rather than a one shot facility approval. 2) On generic Gemzar, Sun will be able to launch the product along with other after the expiry of the 180 days exclusivity in Q2FY12 3) No change in the guidance of 18-20% sales growth in FY11E.
VALUATIONS AND RECOMMENDATION
We tweak our estimates marginally (1-5%) over FY11E and FY12E as we factor in some delay in the resolution of the USFDA issues at Caraco. We re-iterate our 'SELL' with a target price of Rs1,500 (22x Sept'11 earnings). With the base business in US under pressure due to the ongoing issues with the USFDA there is little margin of safety at current valuations of 24x FY12 recurring earnings estimates.
