IGI Logo

India growth partly offset by Taro decline…

Q4 revenues grew 4.1% YoY to | 8523 crore (I-direct estimate: | 8760 crore). Indian formulations grew 12.9% YoY to | 2671 crore. US formulations remained subdued at | 2695 crore, down 0.7% YoY. Emerging markets business grew 3.5% YoY to | 1402 crore. RoW Markets business grew 6.3% YoY to | 1191 crore. API segment de-grew 9.9% YoY to | 473 crore. EBITDA margins expanded 738 bps YoY to 24.0% (I-direct estimates of 23.0%) mainly due to lower other expenditure and better gross margins. Subsequently, EBITDA grew 50.3% YoY to | 2048 crore (I-direct estimate: | 2015 crore). Adjusting for exceptional items, PAT more than doubled (~2x) to | 1343 crore (I-direct estimate: | 1455 crore).

Specialty diversification to be key for US business

The US business comprises ~30% of turnover (FY21). The US product basket comprises 501 approved ANDAs, 94 pending final approvals (including 23 tentative approvals). It also has 55 approved NDAs and nine pending NDAs. US growth has also been backed by extensive infrastructure with 44 global manufacturing facilities. Due to a challenging environment on the generics front, the management plans to diversify into specialty products such as Ilumya, Levulan (dermatology), BromSite, Cequa, Xelpros (ophthalmic), Odomzo, Yonsa (oncology), etc. US growth, however, is likely to remain muted in the near term mainly due to expiry of Absorica patent, pandemic impact on Ilumya & Levulan.

New launches to drive domestic revenues

Indian formulations form 31% of turnover (FY21). With a market share of 8.2%, Sun is ranked No. 1 in domestic formulations. It leads prescription share in 11 specialties including psychiatrists, neurologist, cardiovascular and diabetes. It has also embarked on a strategy to in-license latest generation patent protected products from various innovators. We expect Indian formulations to grow at 13.4% CAGR to | 13305 crore in FY21-23E backed by a lower base, new launches and price hikes.

Valuation & Outlook

Q4 operational performance was in-line with I-direct estimates whereas PAT was below expectations due to lower other income. While the company’s US generics front is going through calibrated product rationalisation, specialty segment looks promising due to robust product pipeline, steady progress. This metamorphic shift from generics to specialty, however, is likely to weigh on US growth in the near term. That said, higher contribution from specialty and strong domestic franchise is likely to change the product mix towards more remunerative businesses by FY23. This would have positive implications for margins also as we expect faster absorption of frontloaded costs on the specialty front. That said, the stock at current level is factoring in most of these aspects and, hence, limited upside. We change our stance from BUY to HOLD and arrive at our revised target price of | 700 (earlier | 675) based on 25x FY23E EPS of | 27.9.

To Read Complete Report & Disclaimer Click Here

https://secure.icicidirect.com/Content/StaticData/Disclaimer.html

Above views are of the author and not of the website kindly read disclaimer