Emkay Global Financial recommended hold rating on Sun Pharma with a target price of Rs 542 in its research report dated July 31, 2020.
Emkay Global Financial's report on Sun Pharma
Sharp cut in opex, lower R&D spends and rise in gross margins boosted EBITDA margins by 765bps qoq to 24.3%. These trends are common across companies. On the other hand, SUNP’s US sales fell 25% qoq − the sharpest so far among covered names. The US business was largely impacted by a 38% qoq decline in specialty portfolio (at US$78mn) and 33% in Taro (63% of portfolio is derma, which is one of the severely hit segments). SUNP’s own generic business was flat qoq. India growth of +3% yoy beat our estimate of a 3% decline (chronic skew aided). Opex cut in Q1 is unlikely to sustain as marketing activity picks up from Q2 onward. With a slow ramp-up in the specialty portfolio, we expect limited margin expansion in the interim due to generic competition in Absorica (Dec’20), increase in India field force (by around 10%) and increase in R&D spends. We expect flat margins over FY20-22E.
Outlook
We raise FY22/23E EPS by 5% each and increase the TP to Rs542 as we roll over to 23x June’22E EPS (vs. 20x earlier). Higher multiple is on account of the reducing overhang of DOJ penalty with the recent settlement. We retain Hold and UW in EAP.
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.
Read More