Sun Pharmaceuticals shares gained over 2.50 per cent in the early trade on Wednesday following better-than-expected Q1 earnings in terms of sales and operating profit margins.
For the quarter ended June 2015, the company reported a consolidated net profit of Rs 1,390.51 crore, down 65.5 per cent, against Rs 478.96 crore in the corresponding quarter a year ago. The company reported its Q1 result on Tuesday post market hours.
At 10.19 am, shares of pharma major were trading 2.44 per cent higher at Rs 862.30. It opened at Rs 844 and has touched a high and low of Rs 867.80 and Rs 844, in trade so far. Market experts believe the share price of the company can go above Rs 900 in the next few quarters.
Net sales of the company jumped 66.09 per cent year-on-year (yoy) to Rs 6,522.16 crore against Rs 3,926.85 crore in the same quarter last year. The sales growth was driven by the Indian formulation market (Rs 1, 784 crore), which posted a yoy growth of 11 per cent, while the US (Rs 3,090 crore), posted a yoy growth of 2.2 per cent. Other regions ROW (Rs 575 crore) and emerging markets (Rs 845 crore), posted a yoy dip of 2 per cent and 10.4 per cent, respectively.
According to Angel Broking, the sales came in at Rs 6,522 crore against Rs 6,200 crore as expected, a yoy growth of 3.3 per cent. On the operating front, the gross margins came in at 73.7 per cent against 74.4 per cent expected and 73.9 per cent in 1QFY2015. The operating profit margin consequently has come in at 24.8 per cent in 1QFY2016 against 25.8 per cent expected and 30.3 per cent in 1QFY2015. The yoy dip in margins is on back of the other expenditure which has moved up by 18 per cent yoy, while staff cost inched up by 11.9 per cent yoy. The brokerage house believe the share price of the company can touch Rs 950 in the next few quarters.
Reported net profit for the last quarter (April-June 2015) was adversely impacted by the one-time items as well as exceptional charges of Rs 685 crore. These exceptional charges relate to impairment of fixed assets and goodwill and other related costs and have arisen on account of integration and optimisation measures.
A research note by KR Choksey Shares & Securities said, “Sun Pharma result was in line with our estimates. Ranbaxy’s consolidation initiatives will have an impact in near term but it will generate synergies in long term. Regulatory challenges and onetime cost related expenses will take a hit on earnings in 2015-16 but we expect synergies from Ranbaxy merger to start arising from FY17 onwards. Management has guided synergy benefits of $300 million by 2018. At current market price, the stock is trading at 25x FY17E. We maintain accumulate rating on the stock with the target price of Rs 910.”
Sun Pharma management highlighted that some of expenses related to integration and cost related to clinical development of Tildrakizumab will continue in subsequent quarters.
The scrip closed 2.90 per cent higher at Rs 866.25 on Wednesday.