Sun Pharma Q4 preview: Profits to drop due to pricing pressure, lack of approvals in US

India's largest drug maker, Sun Pharma, is likely to report a 22.6 percent year-on-year (YoY) decline in the fourth quarter net profit due to pricing pressure and lack of significant approvals impacting its growth in US market.

In the fourth quarter of FY17, the company posted a profit of Rs 1,223.7 crore.

A Reuters poll of analyst estimates forecasts net profit to drop to Rs 947.4 crore. It estimates revenue to decline 0.68 percent YoY to Rs 6,778.8 crore in Q4FY18.

Sun Pharma's US listed subsidiary Taro Pharmaceutical Industries' sales declined 10.8 percent to USD 175.2 million in the fourth quarter. Taro's sales, however, surprised the street which was expecting a much worse performance. The full year sales declined 24.7 percent to USD 661.9 million

"The topline is likely to decline 5 percent YoY and flat QoQ with no big
ticket launches in the US market over last one year. Domestic

business will grow at market rate," said HDFC Securities in its pre-earnings report.

"Sequential improvement of EBITDA margin to continue as spend

on the specialty part of the US business is stabilizing," HDFC Securities report said.

HDFC expects EBITDA margin to be at 22.8 percent in Q4FY18.

"Revenue – Rs 6,653cr, down 16% yoy due to 35% decline in the US market due to pricing pressure and a decline in the sales of generic Imatinib and generic Olmesartan authorized generics," said IIFL in its report.

Things to expect from management commentary

FY19 revenue and EBITDA guidance

Commentary on price erosion on a base business portfolio in the US. The competitive environment of Absorica and Levulan Kerastick is likely to worsen and commentary should be watched.

Sun Pharma’s commercialization plan post the NDA approval to Yonsa.

Update on status of regulatory matters at Halol facility as the company saw three-four ANDA approvals after the last inspection in February 2018.

Shares of Sun Pharma declined 0.45 percent and were trading at Rs 459.95 on BSE at 10.07 am, while the benchmark Sensex gained 0.48 percent to 34,826.10 points.