Motilal Oswal is bullish on Sun Pharma has recommended buy rating on the stock with a target price of Rs 760 in its research report dated November 13, 2018.
Motilal Oswal's research report on Sun Pharma
Domestic formulation sales disappoint: 2QFY19 revenue grew moderately by ~4% YoY to INR68.5b (our estimate: INR75.5b). The miss in revenue is primarily attributable to de-growth in domestic business (~28% of sales) on the back of one-time inventory reduction in supply chain. US business (~36% of sales) grew by a healthy ~11% YoY in constant currency. Gross margin improved by ~280bp YoY (+380bp QoQ) to 74.3%, largely due to lower COGS for Taro and write-back of certain provisions taken earlier. EBITDA margin expanded by ~110bp YoY (-30bp QoQ) to 21%. SUNP reported a loss of INR2.2b during the quarter due to one-time provision of INR12.1b related to the Modafinil anti-trust litigation. Adjusted for this, PAT was up ~9% YoY to INR9.9b (our estimate: INR10.9b). For 1HFY19, sales/EBITDA/PAT increased 10%/27%/38% YoY to INR141.6b/INR31.4b/INR19.8b.
Outlook
We remain positive on SUNP, considering likely ramp-up of specialty products, increased approvals from Halol, and good potential in domestic formulation. Maintain Buy.
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