Sun Pharmaceutical Industries Ltd. share price target

Looking ahead, we expect SUNP's US business to show slower recovery (9.3% CAGR over FY1820E) led by tough pricing pressure and delay in clearance for Halol unit, However, led by low base in FY18, we expect its overall sales and earnings to clock 12% and 38% CAGR over FY1820E, while EBITDA margin is expected to expand by 434bps to 25.5% over the same period. Nonetheless, we trim down our sales/earnings estimates by 2.5%/7.0% and 5.0%/7.6% for FY19E/FY20E, respectively to factor in slower revenue growth, tough pricing pressure in the US and declining Taro's profitability. At CMP, stock trades at PE multiples of 26.4x FY19E and 20.1x FY20E EPS, which appear to be expensive, in our view. Expecting ramp-up of specialty products and US FDA clearance to Halol unit to drive growth, we maintain our HOLD recommendation...

We continue to maintain our NEUTRAL stance. However, we note that a positive outcome for Halol will lead to some recovery in the stock price. Our TP is Rs 530 (20x FY20E + Rs 40/sh). With the help of higher other operating income (OOI) of Rs 2.6bn, revenues grew 5%QoQ (down 2%YoY) to Rs 69.7bn in 4QFY18. EBITDA margin at 24.1% was also largely boosted by OOI. Adjusted for normalized OOI, EBITDA margin was in the range of 21-22%, flat QoQ. Higher R&D; spend at Rs 6.0bn was the key reason for low EBITDA margin during this quarter. Reported PAT was also up 7%YoY/49%QoQ, led by higher other income (Rs 3bn, up 35%YoY) and one-time tax benefits (Rs 2.5bn) in 4QFY18.

ICICI Securities Ltd | Retail Equity Research Revenues declined 2.2% YoY to | 6977 crore (I-direct estimate: | 6719 crore) mainly due to 7% YoY decline in the US to | 2370 crore (I-direct estimate: | 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...

Refer to important disclosures at the end of this report Revenue guidance and Halol restart a positive; events factored in earnings Q4FY18 results had a number of one-offs, including higher operating income (milestone from Almirall), significantly higher non-operating income and tax write-backs. Adjusting for these, operating revenue and EBITDA largely stood in line with expectations. FY19 revenue guidance at low teens growth, significant incremental investments in R&D; & building of front-end marketing for the Branded business. The US Branded business...

We note that none of the three observations issued in the recent inspection are related to data integrity- which is a positive sign for the company, in our view. The first observation points out the lack of defined area to prevent contamination in operations related to aseptic processing of drugs. The second observation mentions that the written procedures for cleaning and maintenance do not clearly provide details of the methods to disassemble and reassemble equipment. The third observation is related to written procedure giving details of sampling, testing,approval and rejection of drug product containers and closures.

Event: The key plant of Sun Pharmaceutical Industries (Sun) at Halol was re-inspected by the USFDA in February 2018 and was issued Form 483 with fresh three observations. The fresh observations relate to equipment, employee training and incubation temperature, i.e. they are procedural in nature and do not point towards data integrity issues. Hence, these issues are...

Sun Pharmaceuticals Industries Ltd Q3FY18 results comment Revenue increased by 0.12% to Rs. 6598.21 Cr in Q3FY18 when compared to the previous quarter. On the other hand, it decreased by 14.12% when compared with Q3FY17.

While we continue to maintain our NEUTRAL stance, we note that a positive outcome in the ongoing inspection at Halol would likely lead to a re-rating and run-up in the stock price. Our TP is Rs 550 (20x Dec-19E + Rs 40/sh). Exacerbated by a poor performance at Taro (revenue of US$ 156mn vs US$ 220mn YoY, EBITDA margin of ~40% vs ~59% YoY), Sun Pharma (SUNP) reported subdued numbers in 3QFY18. The top-line came in at Rs 66.5bn, down 16% YoY. While YoY numbers are not comparable due to significant contribution of sales of gGleevec under limited competition, revenuess were flat QoQ, ~5% below estimates.

ICICI Securities Ltd | Retail Equity Research Revenues declined 16% YoY to | 6653 crore (I-direct estimate: | 6907 crore) due to 38% YoY decline in the US to | 2125 crore (Idirect estimate: | 2189 crore) due to the high base of gGleevec and gBenicar and dismal performance of Taro's sales. India sales grew 6% YoY to | 2125 crore (I-direct estimate: | 2189 crore) EBITDA margins declined to 21.8% (I-direct estimate: 21.5%) against 31.0% in Q3FY17, due to high base, pricing pressure in the US and decline in Taro's margins (42.5% vs. 60.2% in Q3FY17)...