Stock Review: Sun Pharma

SUN Pharma's acquisition of Israel's Taro Pharmaceutical Industries is finally paying off. The March quarter revenue of the Indian drug maker rose 35.5 per cent year on year (YoY), to 1,463.4 crore. Of this, Taro, which grew 21 per cent, contributed nearly `480 crore.

The contribution of Sun's other major subsidiary, US-based Caraco, was `187.6 crore, 25 per cent lower than that in the same period a year ago. Without Taro's contribution, Sun Pharma's revenues would have actually 13 per cent, reports Emkay Global. Going ahead, given the healthy growth prospects, most analysts are bullish on the stock.

DOMESTIC GROWTH

Domestic formulation sales, at 589 crore, marked a healthy growth of 20 per cent YoY. The quarter saw Sun launch nine key products, taking its total to 39 during 2010-11. The domestic growth for 2011-12 is likely to remain robust at 18 per cent, much higher than the domestic average, believe analysts.

ROBUST PIPELINE

On the regulatory front, the recently-concluded quarter saw the company file eight Abbreviated New Drug Applications (ANDAs), taking the total to 25 filings in 2010-11. It also received approvals for two ANDAs. Add to this the three ANDAs for which Taro received approval during the quarter. Management is set to make 25 more filings in 2011-12.

MARGIN PRESSURES

During the quarter, employee expenses and other expenses on a yearly basis grew 119 per cent to `254 crore and 62 per cent to `452 crore, respectively, accounting for the inclusion of Taro's financials, which impacted the operating profit margin (OPM), according to an Angel Broking report. OPM contracted to 30.3 per cent (38.7 per cent). The company's net profit grew 12.3 per cent to `443 crore.

STRONG GUIDANCE

For 2011-12, the management has a guidance for 28-30 per cent growth in revenue. For Taro, analysts estimate sales worth $400 million in 2011-12. The company is looking at inorganic growth and scouting for acquisitions, especially in the US and emerging markets.

Analysts at Angel estimate Sun's net sales to register 29 per cent CAGR from 2010-11 to 201213, with 15.8 per cent CAGR in earnings to `23.5 a share. At current levels, the stock trades at 26 times 2011-12 and 20.3 times 2012-13 earnings estimates.