Buy Sun Pharmaceuticals Industries Ltd For Target Rs.1,000 - Sushil Finance
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Sun Pharma Ltd. recently announced its performance for the quarter ended September 30 2021. Following are the key highlights.
Highlights from the Quarter (Q2 FY22)
Consolidated sales for the quarter were at Rs.9,625.9 cr recording a growth of about 13%/(1%) yoy/qoq. Sales grew about 2% qoq excluding the contribution from Covid-related products in both the quarters. Domestic sales grew at a robust pace, with healthy performance across therapies. Increase in field force on the domestic front by 10% couple of years back and improved patient flow to doctor clinics led to 26% yoy increase in sales. The company aims to grow India business faster than the market going ahead. While the US generic business continues to be competitive, the Sun ex-Taro generics business has recorded growth of 7.5% on yoy basis. This growth is driven by a combination of new launches and better supply chain management. The specialty segment grew by 45% yoy to $157 m mainly driven by Ilumya, Levulan, Odomzo, Cequa & Absorica LD. It also includes $10 m in sales milestones for two of the specialty products. API revenue declined mainly due to lower Opiates’ revenues. The narcotics control bureau has stopped giving new licenses as there are enough inventories currently. As inventory levels decline, it expects to receive new licenses.
Gross margins improved by 110 bps on qoq on account of a higher contribution of domestic sales. Other expenses increased, as selling and distribution and travelling expenses increased q-q on account of normalization of business. EBITDA margin went down by 170 bps to 27% in Q2FY22 on account of higher other expenses and employee expenses.
OUTLOOK AND VALUATION
We forecast Sun Pharma’s revenue/PAT to grow at 9%/9.8% CAGR over FY21- 23E. With the improvement in the specialty business and domestic business, we expect ROCE to increase by ~100bps by FY23E. Going forward, we expect company to deliver an EPS of Rs.32.3 in FY23; assigning a target multiple of 31x, we arrive at a target price of Rs.1,000 showcasing an upside potential of 26% from current levels with an investment horizon of 18-24 months.
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