Sun worlds No. 2 generics firm

Written by MG Arun | Mumbai | Updated: Jul 18 2011, 09:41am hrs
In what is a rare distinction for an Indian company in the global space, Mumbai-based Sun Pharmaceutical Industries, which last year took control of Israels Taro after a three-year legal battle, is now ranked second amonggeneric companies in the world in terms of market capitalisation (M-cap), behind Israels Teva Pharmaceutical Industries. M-cap, the aggregate value of a company or stock, could represent the public opinion of a company's net worth and is a determining factor in stock valuation.

Suns M-cap, as on July 12, stood at $11.7 billion (R51,813 crore), ahead of US-based Mylans $10.7 billion, which ranks third, and Watson Pharmaceuticals' (also of the US) $8.7 billion. The Dilip Shanghvi-promoted companys M-cap, however, was way behindTeva. Teva, the world's largest producer of generic drugs with $16 billion revenues in 2010, had an M-cap of $44.13 billion as on July 12.

Sun Pharma has been leading the domestic generics pack for some time now in terms of M-cap. For instance, its nearest rival among Indian companies is Dr Reddys Laboratories, with an M-cap half of Suns, at $5.9 billion or R26,142 crore, as on July 12. Cipla and Ranbaxy, the other major home-bred generic players, had M-cap of $5.89 billion (R25,938 crore) and $5.23 billion (R23,042 crore), respectively. Sun has a 4.3% share in the R50,000 crore Indian pharmaceutical market, with a 5-20% market share in most of the therapeutic areas it has a presence in.

The biggest differentiator in terms of Sun Pharma has been its consistent ability to generate high net profit margins (NPM), among the highest in the global pharma world, said Navroz Mahudawala, managing director, Candle Partners, a boutique investment banking firm. At around 31-34%, the NPM that it operates in makes it one of the most profitable life sciences companies in the world.

Typically, the innovators are in the 25-30% range. Thus, for a generic leader to manage this, is highly creditable, he added.For the financial year 2010-11, Sun Pharma posted a net profit of R1,816 crore, resulting into a net margin of 32%. Its net sales for the period stood at R5,721 crore, growing 43% over the previous year.

Last September, Sun Pharma acquired a controlling stake in Taro, which saw the formers shares soar to a 16-year record. Uday Baldota, who heads investor relations at Sun Pharma, said, Taro is an important addition to Sun. As of today, Taro market capitalisation (attributable to Sun ownership of 66%) is approximately 5% of Sun market capitalisation. Asked to comment on Suns high ranking in the generics space, Baldota said, While we do feel good about this, this is also partly on account of the fact that large generic companies like Sandoz are not listed separately.

According to Sarabjit Kaur Nangra, vice-president, research at Angel Broking, one of the major reasons why Sun Pharma is a favourite among foreign institutional investors (FIIs) and others is the headway the company has made in the chronic therapeutic segments, compared to its peers which have focused on the acute therapeutic segment.

Moreover, Sun always had a major presence in the US and Taro buy has made it stronger. Sun is the Indian company with the most number of abbreviated new drug applications (ANDAs) in the US market, she said.

Approval of these applications by the US Food and Drug Administration (US FDA) is essential for generic companies to market the drugs in the worlds largest pharmaceutical market. Sun has a 2-3% presence in the US market as of now.