Hold Sun Pharmaceuticals; target of Rs 510: ICICI Direct

ICICI Direct's research report on Sun Pharmaceuticals

Revenues declined 2.2% YoY to Rs 6977 crore (I-direct estimate: Rs 6719 crore) mainly due to 7% YoY decline in the US to Rs 2370 crore (I-direct estimate: Rs 2073 crore). The decline in the US was due to high base of gGleevec (oncology) and gBenicar (CVS) EBITDA margins improved 245 bps to 24.1% (I-direct estimates of 20.9%) mainly due to strong gross margins. Gross margins improved 539 bps to 74.6% (I-direct estimates of 68.4%). EBITDA increased 8.8% YoY to Rs 1684 crore (I-direct estimate: Rs 1407 crore) Adjusted net profit increased 8.9% to Rs 1332 crore (I-direct estimate: Rs 957 crore). Increase in depreciation & interest cost was largely offset by tax reversal.

Outlook
The 16% YoY decline in FY18 revenues was far worse than management guidance of higher single digit decline guided at the beginning of the year mainly due to pricing pressure both at Taro and ex-Taro US businesses and delay in Halol resolution besides GST disturbance in India. Going ahead, the management commentary sounds upbeat with double digit growth guidance for FY19 with slew of specialty launches in the US after 18-24 months of recalibrated efforts and recent approvals. This specialty focus remains a key differentiator vis-à-vis peers. The effort-reward aspect in these products in the US will have bearings on the investors sentiments besides final resolution of the lingering Halol resolution. We maintain our HOLD recommendation with a target price of Rs 510 based on 22x FY20E EPS of Rs21.6 and Rs 38 NPV for Tildrakizumab.

For all recommendations report, click here

Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.