Sun Pharma Rating | Reduce — A muted performance in the final quarter

By: |
Updated: June 8, 2019 2:14:37 AM

Specialty challenges eclipse medium-term outlook; FY21e EPS down 4%; ‘Reduce’ retained with revised TP of Rs 380

Sun Pharma Rating, Sun Pharmaceutical, Aditya Medisales, EM businesses, US salesMaintain Reduce with a revised target price of Rs 380 (earlier Rs 400) as we roll forward to September 2020E EPS.

Sun Pharmaceutical (SUNP) reported a weak Q4FY19, marred by many one-offs on both the income and expense sides. The US business gained from a one-off generic supply opportunity of $70–80 mn, which will continue in Q1FY20, while the domestic business recorded a one-off impact of Rs 10.85 bn from merger of Aditya Medisales (AML). The company guided for mid-teen revenue growth for FY20; however, adjusted for one-offs in base year, it would be limited to a single-digit in our view.

We believe medium-term earnings growth will be challenging given Ilumya’s slow uptake and concurrently rising R&D cost. We are cutting FY21E EPS by 4% to factor in the miss. Maintain Reduce with a revised target price of Rs 380 (earlier Rs 400) as we roll forward to September 2020E EPS.

Performance muted; one-offs aplenty

Results were impacted by the following one-offs: i) Rs 10.85 bn pertaining to change in India distribution from AML to wholly owned subsidiary; ii) business of generic supply to a US customer, which partly led to $81 mn QoQ growth in US sales; iii) forex loss of Rs 520 mn; and iv) tax benefit of Rs 2.59 bn. While the impact on sales excluding these one-offs is known, management refrained from quantifying their impact on earnings.

Specialty ramp-up slower than expected

SUNP, with its $1-bn investment in US specialty, has built a portfolio of nine products. It launched three of these in FY19. However, a breakeven in this would take long as the company has already lined up more investments.

Outlook: Risk-reward skewed

Near-term specialty challenges eclipse medium-term outlook as ramp-up has been slow even as competition is intensifying. While stock seems to be ascribing a fair value to domestic and EM businesses, it overestimates opportunity in specialty. Hence, we maintain ‘REDUCE/SU’.

 

Get live Stock Prices from BSE and NSE and latest NAV, portfolio of Mutual Funds, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Next Stories
1Corporate Affairs Ministry, Sebi to start automatic data exchange
2DHFL says making all efforts to meet debt obligations within 7 days of grace period
3Indiabulls Real Estate promoters sell 12% stake to Embassy group; plan to exit realty business