Sun Pharma March quarter profits fall, miss street estimates; should you buy, sell or hold?

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Published: May 28, 2020 10:22 AM

India’s largest drug-maker, Sun Pharma, posted a 59% fall in consolidated profit after tax in the January-March quarter on-year basis, and missed street estimates as well despite a jump in revenue.

Growth in domestic business was in line with street estimates, however, EBITDA missed estimates by close to 9%.

India’s largest drug-maker, Sun Pharma, posted a 59% fall in consolidated profit after tax in the January-March quarter on-year basis, and missed street estimates as well despite a jump in revenue. The slump in profits was largely attributed to the Rs 260 crore settlement charges paid by the company to the Department of Justice in the USA and increasing expenses. Estimates for the coming fiscal have been trimmed with expectations of a dip in sales in various geographies. Sun Pharma’s net profit stood at Rs 399.84 crore in the March quarter, down from Rs 635.88 crore in the same period last year. Profit before tax stood at Rs 577 crore down from Rs 694 crore from a year ago. 

Growth in domestic business was in line with street estimates, however, EBITDA missed estimates by close to 9%. Brokerage and Research firm, Kotak Securities said the profit after tax missed their estimates by 35%. “SUN Pharma had launched Cequa in 3QFY20, and while the product had strong initial traction, we believe prescriptions will stall materially in 1QFY21 given Covid-19. Similarly, we expect a significant dip in Levulan sales, and expect only limited success of the ongoing Absorica switch (to Absorica LD) to counter generic threat from 4QFY21,” Kotak Securities said in a research note. The brokerage firm has a target price of Rs 480 on the scrip which is only marginally up from the current trading price. 

US revenues improved 7.1% QoQ to US$375mn led by 18% jump in Taro sales. Ex-Taro, revenue stood flattish. Following the path taken by many firms, Sun Pharma has also steered clear from providing guidance for the coming year as uncertainty looms large owing to the coronavirus pandemic. ICICI Securities although remains optimistic despite the Sun Pharma missing estimates provided by the brokerage firm. “Overall, we expect 7.9% revenue and 20.9% adjusted PAT CAGRs over FY20-FY22E with EBITDA margin expansion of 220bps,” ICICI Securities said while acknowledging that sales in the near term might stay soft. ICICI Securities has a Target Price of Rs 528 on Sun Pharma.

Shares of Sun Pharma jumped 1% on BSE Sensex in the initial hour of trade as the benchmark index surged higher for yet again on Thursday gaining 359 points. Riding the wave that pharma stocks have been witnessing, Sun Pharma shares have surged 42% since March, after falling close to 30% in the initial three months of 2020. 

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