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Published on 28/11/2019 2:18:24 PM | Source: Yes Securities Ltd

Sell Sun Pharma Ltd For The Target Rs.380 - Yes Securities

Persistent weakness in US

IN-LINE QUARTER BUT EX-TARO US REMAINS WEAK Sun Pharma management reiterated its prior commentary and maintained that US generics environment remains challenging and it has seen no improvement in the quarter; albeit, seasonality in Absorica did have an impact in Q2. Specialty sales were flat at US$91mn vs US$94mn in Q1 and company would ramp up specialty R&D over next few quarters to be spend on newer indications of Ilumya and other assets. Ilumya and Skyrizi managed to grow in a quarter when other brands declined in what is a slow period for Psoriasis. US sales remained weak ex-Taro as the one-off supply opportunity got exhausted in Q1 even as guidance for overall revenue growth retained for the year. India sales came ahead of estimate though yoy not comparable as last year had an inventory write off.

 

Risks to growth persists in US generics; SELL stays

Overall Q2 results and management commentary do not lift the cloud of uncertainty on US revenues even as key asset like Ilumya remains in a gradual ramp up and faces stiff competition from competing IL-23 brands Skyrizi and Tremfya. We factor in recovery in US sales in H2 and FY21 coupled with margin gain; albeit, we remain convinced risks to growth in US business still remain as evident from management comment that even a 5% price decline on a large portfolio leaves a gap that may not always be filled with new launches. Hence, our negative view on US generics persist with SELL retained on SUNP, based on 17x FY21 PE. 

 

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