The cash outflow is 42% of Sun Pharmas consolidated cash balance and the incremental liability (over and above provisions made in FY13) is approx 17% of FY13 net worth (we do not assume any tax benefit at this stage).
The potential earnings impact due to one-time extraordinary expense can be R24.5/share in FY14 assuming no tax shield, which is 60% of projected earnings for FY14E. Sun Pharma is trading at 23.8xFY14F and 22.2xFY15F, a 1520% premium to peers.
We believe one of the key reason for the premium multiple is a strong balance sheet and the possibility of a value accretive acquisition. Therefore, reduction in cash balance could lead to some correction in PE multiples. We have a neutral rating on the stock with sum-of-the-parts target price of R842/share, which implies PE multiple of 18.5xFY15 estimates.
Sun Pharma currently trades at 23.8xFY14 and 22.2xFY15 estimates, which is a 1520% premium to other front-line peers.