We reiterate our ‘overweight’ rating on Sun Pharma on back of its resilient US business, rich generic pipeline of 138 abbreviated new drug applications(Andas) pending approval, which has a mix of differentiated products attracting limited competition, and consistently growing high-margin India business.
About 18-20% sales growth guidance for FY14 draws comfort from positioning with big products in the US, in our view. While India is showing signs of slowing down to c15% y-o-y after adjusting for extra sales booked in FY12Q4, pricing policy concern is least with Sun Pharma. In addition, strong free cash flow (FCF) generation gives room for inorganic growth and investment in technologies.
We value Sun Pharma at an unchanged 24-times June 2015 earnings per share (EPS) (earlier March 15) of R49.5 and add R12 (earlier R10) for para-IV to arrive at a revised target price of R1,200 (earlier R1,163). The key risks are significant unexpected price cuts in Taro products and delayed approvals in the US.
Taro reported sales of $671 million in FY13, with the US contributing $588 million (88% of total sales). US sales increased by c28% or $ 127 million during the year, of which $107 million came from price increases in six products. These six products contributed c29% of sales in FY13 against 16% in FY12. Of them, the nystatin + triamcinolone combination saw the largest increase in sales, with its share of total sales expanding from 5.7% in FY12 to 14.1% in FY13 (c$ 95 million sales).