Re-iterate Sell on Sun Pharma - PINC Event Update

Favourable ruling in Taro case

The Supreme Court of Israel has ruled in favour of Sun Pharma (SUNP) in the Taro case. SUNP will now move ahead with its plan to integrate Taro. We highlight that Taro's US business has substantial synergies with SUNP's US business in terms of the product portfolio as well as the customer access. While we envisage this development positively, we await the audited financials of Taro or clarity on the numbers from SUNP's management to take a more informed view on the same. We continue to view SUNP as expensive on the base business.

Favourable decision from the Supreme Court clears the last legal hurdle in the Taro saga SUNP will now be able to move ahead with its open offer and eventually merge Taro with SUNP.

Taro's unaudited financials show an improvement; Audited numbers available only till CY06

Taro's audited results are available only till CY06. Thereafter the management has put out press releases only to report unaudited and estimated results. These unaudited results have shown a marked improvement in OPMs from a loss (neg.28%) in CY06 to +18% driven by improvement in SG&A. SUNP has repeatedly highlighted this at every interaction with investors. To that extent we believe there is still uncertainty on the eventual upside possible. We await audited numbers before including Taro in our estimates.

VALUATIONS AND RECOMMENDATION

We re-iterate our 'SELL' with a TP 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 23xFY12E recurring estimates.

Source : Equity Bulls

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