Higher than expected sales of specialty and improving traction in Ilumya were key positives; ‘Buy’ maintained with target price of Rs 525
Sun Pharma reported Q4FY20 results on Wednesday. Revenue came in at Rs 80.8 bn, up 15% y-o-y and 2% ahead of our estimate. Management expects some softening of revenues in the near term due to the adverse impact of India’s lockdown and stockpiling by customers in the current quarter. Gross margin came in at 71.5% and was in line with our estimate. Ebitda was adversely impacted by forex loss of Rs 1.4 bn. Adjusted for the forex loss, Ebitda came in at Rs 14.0 bn, up 56% y-o-y and 2% below our forecast.
Adjusted Ebitda margin was 17.3% vs our 18.5% forecast. The Ebitda margin miss was due to higher other expenses owing to higher SG&A spend at Taro. Reported PAT at Rs 4.0 bn was impacted by forex loss and exceptional losses of Rs 2.6 bn. Adjusting for the forex loss and exceptional loss, PAT was ~ Rs7.7 bn, 1% ahead of our estimate. Key positives are the higher-than-estimated sales of specialty and improving traction in Ilumya. Specialty sales increased by $8 mn q-o-q and Ilumya sales for FY20 were ~$20 mn ahead of our estimate. Stronger-than-estimated scale-up in Ilumya could help negate the impact of higher costs on specialty.
Key results and post earnings conference call takeaways
India formulations: Revenue came in at Rs 23.6 bn, 4% below our forecast. Q4FY19 was adversely impacted due to distributor change implementation in India. Adjusting for that, Q4 domestic formulation business grew 8% y-o-y. For full-year FY20, adj growth for Sun Pharma was at 15% y-o-y vs market growth of 10%. As per management, Sun Pharma has been gaining market share over the past 2 quarters. The company intends to increase its salesforce by ~10%. With a large chronic presence and an enhanced field force, we expect SUNP to grow ahead of the broader market in the near- to medium term.
US formulations: Q4 revenue came in at $375 mn, up $25 mn q-o-q and $25 mn ahead of our estimate. The q-o-q increase is largely driven by higher sales at Taro in our estimates. Despite Taro’s strong revenues, we estimated SUNP’s US revenues to remain flat q-o-q on seasonal drop in specialty sales. The specialty revenues in fact increased by $8 mn q-o-q. During Q4, the company filed 6 ANDA and received 2 ANDA approvals.
Specialty: Global specialty revenues increased q-o-q to $126 mn from $118 mn in Q3FY20. The increase in sales was led by Ilumya, Cequa and Yonsa. For Q4, Levulan and Absorica softened compared to Q3 owing to seasonality, but the extent of the fall was lower than our expectation. The ramp-up of new launches Absorica LD and Cequa was adversely impacted due to COVID-19 related lockdown. The digital DTC campaign commenced for Cequa in Q1FY21.
The company disclosed global Ilumya sales of $94 mn globally.
We estimate that more than $80 mn of sales is from the US, which is higher than our estimate of $60 mn. SUNP has filed for Ilumya in Japan and aims to launch the product in due course. Sun Pharma has spent 24% of R&D on specialty. The specialty R&D spend is likely to increase substantially as SUNP starts clinical trials for additional indications of Ilumya.
Emerging Markets (EM): Q4 revenue came in at Rs 13.5 bn, up 11% y-o-y and 3% ahead of our estimate. South Africa tender business has seen some reduction over the year, as per management. Ex-tender business EM revenues grew at double digit over FY20.
R&D: During Q4FY20, R&D was at Rs 5.3 bn (6.6% of sales), down 5.5% y-o-y. For full year FY20 R&D was Rs 19.7 bn (6.1% of sales).
Valuation: We maintain Buy and our TP of Rs Rs 525, which is based on 20x Nov’21 EPS of Rs 26.3. The stock currently trades at 19.4x and 16.3x FY21F and FY22F EPS of Rs 23.2 and Rs 27.7, respectively.