Friday, June 1, 2012

>SUN PHARMA INDUSTRIES LIMITED: Supplies generic Doxil to US

Strong growth across geographies

Sun Pharma Industries’ (SPIL) Q4FY12 results were better than our expectations. The company reported 60%YoY sales growth due to good growth across all geographies. SPIL’s EBIDTA margin improved by 1080bps YoY from 30.4% to 41.2% due to overall decline in costs. The company’s other income grew by 63%YoY from Rs1.30bn to Rs2.12bn. The company’s tax rate has increased from 0.4% to 16.4% of PBT due to the expiry of EOU benefits. Net profit grew by 85%YoY from Rs4.43bn to Rs8.20bn. We have revised the rating from Hold to Buy with a target price of Rs657 (based on 25x FY14 earnings of Rs26.3).

 Strong revenue growth: During the quarter, the Indian formulation business reported 49%YoY growth from Rs5.89bn to Rs8.77bn due to the Rs1.80bn onetime sales from change in distribution system. Excluding the one-time effect, sales growth was 21%. The US formulation business grew by 83%YoY from Rs5.53bn to Rs10.11bn due to price revision of Taro products, supply of generic Doxil to US and favourable currency effect. RoW formulations grew by 45%YoY from Rs2.23bn to Rs3.23bn.

 Enviable margins: SPIL reported 1080bps improvement in EBIDTA margin from 30.4% to 41.2% due to overall reduction in costs. The company’s material cost declined by 40bps from 21.4% to 21.0% of revenues due to strong revenue growth. Personnel expenses dropped by 240bps from 17.3% to 14.9%YoY. Other expenses declined by 800bps from 30.9% to 22.9%. SPIL has one of the highest margins among the pharma companies.

 Supplies generic Doxil to US: SPIL supplied generic Doxil (doxorubicin HCl injection), an anti-cancer product to the US due to the critical shortage of this product in the US market. The supply has been made under its own brand name Lipodox.

 Taro performing well: For Q1CY12, Taro Pharma has reported 35%YoY growth in revenues from $108mn to $145mn. Its EBIDTA margin has improved by 1460bps YoY from 31.0% to 45.6% due to the price increase of selected products in the US market. Taro’s net profit grew by 84%YoY from $25.7mn to $47.2mn.

 Attractive valuations, Reiterate Buy: We expect SPIL to report good growth across all geographies and from new product launches in the domestic and US markets. We expect Taro to perform well in the US market. We have revised our EPS estimates downwards by 2% for FY13 and upwards by 6% for FY14. At the CMP of Rs577, the stock trades at 27.0x FY13E EPS of Rs21.3 and 21.9x FY14E EPS of Rs26.3. We have revised the rating from Hold to Buy with a target price of Rs657 (based on 25x FY14 earnings of Rs26.3).