Sun Pharma - Motilal Oswal

SUN PHARMA: Further delay in resolution of US FDA issues at Caraco; No major changes in estimates

Sun Pharma's US subsidiary, Caraco, has indicated that it does not expect to commence the manufacture and distribution from its Detroit facility by end FY11.

Its previous guidance has included commencement of manufacturing for three more products by FY12 taking the total number of products to five.

We do not expect any major financial implications of this delay as only two products were to commence manufacturing from Caraco's US facility.

Since, Caraco has been absent from the market for these two products for a long time, we had not estimated any significant revenues from these products.

Hence our estimates for Sun Pharma remain unchanged. We expect core FY11 EPS at Rs12.7 and FY12 EPS at Rs16.4 including the Taro acquisition. Our estimates for Taro budget for 100bps expansion in EBITDA margins per year for the next two years. Based on our current estimates, the stock is valued at 38.4x FY11E and 29x FY12E core earnings. Earnings growth is likely to improve post the resolution of Caraco's problems.

Source : Equity Bulls

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