SUNPHARMA
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-3.45 (-0.34%)
NSE Volume
7.9L+
Broker Reports
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HOLD
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Revenues de-grew 9.4% YoY to Rs 7585 crore (I-direct estimate: Rs 7948 crore) mainly due to 27.5% YoY decline in US formulations to Rs 2136 crore due to high base and continued pressure on dermatology segment (Taro included). India business grew 3.2% YoY to Rs 2388 crore whereas Emerging Markets business de-grew 2.4% YoY to Rs 1316 crore. RoW markets business also degrew 11.1% YoY to Rs 1030 crore. EBITDA margins expanded 47 bps YoY, 765 bps QoQ to 24.3% (I-direct estimate: 17.0%) despite higher employee expenses mainly due to lower other expenditure and better gross margins. EBITDA de-grew 7.6% YoY to | 1844 crore (I-direct estimate: Rs 1351 crore). Adjusted PAT de-grew 17.4% YoY to | 1146 crore (I-direct estimate: Rs 621 crore). Exceptional expense of Rs 3633 crore pertain to Taro's settlement with US DoJ (cumulative US$419 million) and US$60 million provision for multijurisdiction antitrust matters.
REDUCE
SUNP 1QFY21 revenue were lower than our estimate because of US specialty and Taro sales while adj. EBITDA margin positively surprised at 23.1% (PLe :20.4%) due to 1) lower R&D spend (5.6% of sales v/s 6.4% QoQ) and 2) lower SGA costs led by travel restriction on employees and lower marketing expense (21% of sales v/s 29% QoQ). We believe even after Taro’s settlement with DOJ for generic price matters, US biz still has several concern related to 1) inconsistent performance of US specialty products, 2) Taro’s declining revenue trend and gross margin due to erosion in derma portfolio, 3) lack of key approvals due to regulatory issues in Halol and 4) further R&D in Ilumya for new indications. With only India formulations contributing to growth while other regions lacking in consistent performance, we downgrade our rating to Reduce (earlier Hold) but retain TP at Rs479 (PE 21x of FY22E).
BUY
While the US generics front is seeing calibrated product rationalisation, specialty segment looks promising due to robust product pipeline, steady progress. This metamorphic shift from generics to specialty, however, is likely to weigh on US growth in the near term. That said, higher contribution from specialty and strong domestic franchise is likely to change the product mix towards more remunerative businesses by FY22. This would have positive implications on margins also as we expect faster absorption of frontloaded costs on the specialty front. We upgrade to BUY and arrive at our new TP of Rs 540 based on 22x FY22E EPS of Rs 24.5.
HOLD
We believe SUNP’s US business continues to be biggest hangover on earnings over FY20-22E due to 1) Taro’s continued underperformance, 2) lower than expected ramp up in US Specialty 3) regulatory hurdle in Halol and 4) pricing pressure in US derma products. Over several quarters SUNP had been quite optimistic about their specialty products, however it has failed to meet its own expectation. Much hyped Ilumya was able to generate only US$94mn in FY20 even after 18months of its launch. With requirement of further investment for specialty products (R&D and marketing), SUNP earnings are expected to stay muted in US while India formulations could act as a savior to hold earnings. We increase our earnings estimate by 7% primarily due to growth in domestic market and arrive new TP of Rs467 (earlier Rs 436) based on 21x PE of FY22E, while maintain ‘Hold’ recommendation.
HOLD
REDUCE
Management maintained guidance of significant cost push (promotion, marketing and employee) of launching branded specialty products going forward. Rationalizing generic portfolio with ongoing withdrawal of unviable commercial products, SUNP focus only on launches of generics with limited competition to sustain headwinds in US generics. With risk of major revenue in Absorica post genericisation in December FY21E, the SUNP valuation to remain challenging as its valuation is highest among its peers. SUNP trades at PE of 25.3x and 21.7x of FY20E and FY21E, respectively. We rolled forward to earnings estimates of FY22E and derive new TP of Rs412 (PE 19x of FY22E) vs. our previous TP of Rs396. We maintain ‘Reduce.
REDUCE
REDUCE
We believe Ilumya will face stiff tough competition from AbbVie’s Skyrizi (Risankizumab) and J&J’s Tremfya (Guselkumab) because of the lower efficacy level with PASI (Psoriasis Area Severity Index) score of 75 in week 28 versus Skyrizi & Tremfya PASI of 90 in just 16 weeks. With more than 15months’ post launch of Ilumya in US, its market share has been lower than 2% in interleukin (IL) treatment for psoriasis/psoriatic arthritis, while Skyrizi and Tremfya have gained market share of more than 2% and 5% respectively. Although market expects Ilumya peak sales of US$300-350mn, we believe strong competition from IL-23 drugs (Skyrizi and Tremfya) will restrict Ilumya peak sales at US$100-130m. Currently, SUNP’s specialty portfolio has launched eight products and with a quarterly sale of $90-100m on $1bn investment till date. We believe lower realization in specialty portfolio, higher overhead costs (promotion costs, employee costs of reps for brands and R&D), FDA concerns over Halol plant and corporate governance issues will remain a valuation overhang. Maintain ‘Reduce’ with TP Rs396.
BUY
We remain positive on SUNP on improving traction in the specialty portfolio, industry-level growth in domestic formulation (DF) and increasing pace of approvals in the US generics segment. We continue to value SUNP at 22x 12M forward earnings to arrive at a price target of INR515. Maintain Buy.
REDUCE
Halol received EIR in June CY18, around 30 months after it received first WL in December CY15.With the likely possibility of the conversion into WL, this could impact growth in non-Taro generics in the US. Non-Taro US sales were US$856m(FY19) and Halol contributed 10% (US$150m) of overall US sales of US$1,526m(FY19). Management guided incremental US$100m sales from Halol in FY20E post-resolution. In the case of WL for Halol in Q1FY21E, non-Taro sales to be impacted due to lower volume of exports to the US and restriction on new approvals.The observations may also impact the revenues of Q4FY20E. We maintain ‘Reduce’ with TP Rs396.
BUY
SUNP has reported a good performance in 2QFY20 led by growth in India and RoW market. Ramp-up in specialty biz is a key growth driver going ahead. At CMP, stock trades at 22.0x and 17.7x of FY20 and FY21 earnings, respectively (12-month fwd 3-yr avg. Bloomberg PE at ~27x; below 1-SD three-year average), which is attractive to take fresh position, in our view. In light of increasing business visibility in India and other geographies, we maintain our BUY recommendation on the stock with a Target Price of Rs500.
REDUCE
Management maintained guidance of significant cost push (promotion, marketing and employee) of launching branded specialty products going forward. Expecting continuation of headwinds in US generics, SUNP guided for launch of generics with limited competition. The SUNP valuation remains challenging and one of the highest among its peers as it trades at PE of 23.3x and 22.2x of FY20E and FY21E. We maintain ‘Reduce’ and retain TP at Rs396.
REDUCE
BUY
The EBITDA margin recovered on sequential basis and showed significant growth on recovery of domestic business and declining other expenses as a percentage of revenue. Net earnings Rs13,875Mn were higher than our/consensus estimate by 11.3%/36.8%, respectively. The net earnings showed a growth of 118.2% QoQ and 41.2% YoY. We have retained Buy rating on SPIL with a target price of Rs 578.
HOLD
We upgrade our revenues by 0.4% for FY20E on back of upgrade in ROW and API business and downgrade it by 0.5% for FY 21E by removing one time supply of generics in FY20E. We maintain our EBDITAM for FY20E while we downgrade for FY21E by 18 bps due to lower gross margins. We upgrade our EPS estimates for FY20E /FY21E by 2.1%/ 1.1% to Rs 17.8 / Rs 21. Due to upgrade in earnings we revise price target of Rs 462 based on 22x FY21E (EPS Rs 21) and maintain our HOLD rating on the stock.
REDUCE
Near-term challenges in specialty eclipse the medium-term outlook as the ramp up has been slow even as competition is intensifying. While the stock price seems to be ascribing a fair value to domestic and EM businesses, it overestimates the opportunity in specialty. Hence, we maintain ‘REDUCE/SU’ with TP of INR380.
HOLD
Valuation - Maintain Hold with an upward revised PT of Rs. 500
The stock has corrected by almost 35%+ from its high and is currently trading at 14.2x its FY2021E earnings. We expect the company to report sales and profit CAGR of 20% and 38%, respectively, over the next two years. Although the quarter’s performance was better than expectation, the company still faces pending litigation case in the U.S. for pricing collusion. We feel FY2020 will reflect full impact of increased coststructure (on account of speciality pipeline build up); and from FY2021due to new launches, OPM could see significant improvement. Although valuation seems reasonable, we would like to monitor the sustainability of Q1 performance before taking a constructive view to upgrade the stock rating. We maintain our earnings estimates for FY2020E and FY2021E. We also maintain our Hold rating on the stock. However, we have revised the PT upward to Rs. 500.
The stock has corrected by almost 35%+ from its high and is currently trading at 14.2x its FY2021E earnings. We expect the company to report sales and profit CAGR of 20% and 38%, respectively, over the next two years. Although the quarter’s performance was better than expectation, the company still faces pending litigation case in the U.S. for pricing collusion. We feel FY2020 will reflect full impact of increased coststructure (on account of speciality pipeline build up); and from FY2021due to new launches, OPM could see significant improvement. Although valuation seems reasonable, we would like to monitor the sustainability of Q1 performance before taking a constructive view to upgrade the stock rating. We maintain our earnings estimates for FY2020E and FY2021E. We also maintain our Hold rating on the stock. However, we have revised the PT upward to Rs. 500.
BUY
Positive outlook persists
We maintain BUY on SUNP following a beat to our estimates. Our TP is at Rs 545 (22x FY21E EPS). The execution in specialty segment is crucial. At CMP, the stock is trading at 23.5/17.7x FY20/21E EPS, a ~15% premium to peers. With a significant part of revenues expected to come in from the branded business in 3-4 years, we believe the stock will continue to command a premium.
We maintain BUY on SUNP following a beat to our estimates. Our TP is at Rs 545 (22x FY21E EPS). The execution in specialty segment is crucial. At CMP, the stock is trading at 23.5/17.7x FY20/21E EPS, a ~15% premium to peers. With a significant part of revenues expected to come in from the branded business in 3-4 years, we believe the stock will continue to command a premium.
BUY
SUNP has reported a strong performance in 1QFY19 on the back of healthy growth across geographies. On positive note, it completed the transition in distribution in India business from AML to WOS, following which it reported 12% YoY underlining growth and expects better-than- covered-market growth of 9-10%. Though SUNP had addressed some corporate governance issues raised by the investors, we see the SEBI-related issues continue to remain event-specific risk for the stock in the near-term. Owing to increasing visibility in India and other businesses, we maintain BUY recommendation on the stock with a Target Price of Rs500.
REDUCE
Management maintained guidance of significant cost push (promotion, marketing and employee) of launching branded specialty products going forward. Expecting continuation of headwinds in US generics, SUNP guided for launch of generics with limited competition. The SUNP valuation remains challenging and one of the highest among its peers as it trades at PE of 23.1x and 22.1x of FY20E and FY21E. While SUNP tries to address the issues over corporate governance, we expect this will remain a hangover over the valuation of SUNP and eliminate premium valuation in comparison to peers. We maintain ‘Reduce’ and retain TP at Rs396 (PE 20x of FY21E earnings).
BUY
Decent Performance Post One-off Adjustment; Maintain BUY. Outlook & Valuation: SUNP’s 4QFY19 performance were decent on account of (1) improvement in the US business; (2) distribution transition in domestic business is on track. Recently, SUNP has addressed some corporate governance issues raised by the investors, which in our view is a very positive move. We view SEBI-related issues as event-specific risks for the stock in the near-term. We reduce our PAT estimate by 17%/13% for FY20E/FY21E owing to higher R&D spend and higher marketing spend for specialty segment in the US. We also reduce our target multiple to 20x (from 22x earlier), as we roll-over our earnings estimate to FY21E. As we believe the current valuation (PE multiple of 16.6x FY21E earnings) offers favourable risk-reward, we maintain BUY recommendation on the stock with a revised Target Price of Rs500 (from Rs535 earlier).
BUY
We cut our FY20/21 estimate by 9%/8% to factor in increased marketing spend toward the specialty portfolio in the US market. We also reduce the P/E multiple to 22x (from 23x) 12M forward earnings basis to factor in the delayed pick-up in the US generics business post resolution of the regulatory issue at Halol. Accordingly, we arrive at a TP of INR480. Maintain Buy.
BUY
SUNP is likely to be in an investment phase for its US specialty business over FY20, with 7-8 products in the US, slow ramp up and heightened promotional spend (300- 400bps margin impact). Meanwhile, the growth in the domestic biz is expected to return to double-digits while the co is also initiating cost control measures to improve margins.We maintain BUY on SUNP following a miss to our estimates owing to a one-off. Our TP is revised to Rs 600/sh (22x FY21E EPS + Rs 40/sh for specialty). Hopes are hinged on a ramp up in specialty business.
BUY
We exercise caution in the backdrop of a whistle-blower’s complaint to the Securities and Exchange Board of India or SEBI anda possible adverse outcome of that investigation. We have tweaked our estimates and assigned Buy rating to SPIL with a target price of Rs578 (down from Rs581), which is based on 20xFY21E EPS and at a discount to the historical trading multiple. There is potential for the stock to trade at a higher level if the company is able to come out clean from the ongoing whistle-blower investigation.
HOLD
We decrease our revenues by 3.5%/ 3% for FY20E /FY 21E on back of downgrade in domestic formulations business. We decrease our EBDITAM by 220 bps to 22.7 % for FY 20E and by 150 bps to 23.7 % for FY 21E due to scale up in promotional spend. We downgrade our EPS estimates for FY20E /FY21E by 18.3%/ 16% to Rs 17.4 / Rs20.8. On account of downgrade in earnings we revise our rating to HOLD and our price target to Rs 458 based on 22x FY21E (EPS Rs 20.8).
HOLD
The management expects continuous frontloading of cost as the company enters the thick of investment activities for specialty launches. This optical move is the culmination of the long ongoing endeavour of the management for a drift from generics to specialty in the backdrop of US headwinds. We believe this is the key differentiator vis-à-vis peers. However, despite this,we expect investors to remain cautious in the backdrop of whistle blower’s complaint filing to Sebi and its possible outcome. These issues are likely tooutweigh the company’s steady fundamentals in the near term. Our target price is Rs 460 based on 18x FY21E EPS of Rs 23.4 and Rs 38 NPV for Ilumya.
REDUCE
BUY
Looking ahead, we expect JKT’s performance to improve further owing to sustained growth in sales volume, reduction in manpower cost and benign input cost. At CMP, the stock trades at a lower multiple vis-à-vis its peers mainly due to high debt. However, we expect a likely pick-up in utilisation and moderate capex requirement to help JKT to control its D/E ratio in the coming quarters. Factoring margin pressure, we lower our earnings estimates for FY20E, while we maintain our EBIDTA and EPS estimates for FY21E. Post recent correction, the stock trades at attractive at valuation of 5.2x FY21E EPS. Maintaining our estimates and valuation multiples for FY21E owing to strong quarterly performance, we reiterate our BUY recommendation on the stock with an unrevised Target Price of Rs135, valuing the stock at 8xFY21E EPS.
BUY
Sun Pharmaceutical Industries (SPIL) is India’s largest and the world’s fifth-largest generic pharmaceutical company. We initiate coverage on SPIL with a Buy rating and a target price of Rs581 (20x FY21E EPS) and estimated revenue and EPS CAGR of 12% and 47%, respectively. We expect US$600mn in incremental sales from new product launches in the specialty pharmaceutical space, primarily driven by Cequa and Ilumya. Subsidiary Taro Pharmaceuticals’ earnings are expected to decline by 9% CAGR driven by rising competitive intensity. Rest of the US business for SPIL (excluding Taro Pharmaceuticals and Dusa Pharmaceuticals) should start growing as 123 ANDAs (abbreviated new drug applications), which are pending approval, gradually start reflecting in incremental revenues. Price erosion in base business is unlikely to be painful as the same is now commoditised with a median competitive intensity of eight players across its marketed ANDA portfolio.
BUY
Aided by forex gain (4% of sales) and subdued R&D spend (6% of sales), Sun Pharma (SUNP) beat our earnings estimates by 40% with PAT at Rs 12bn in 3QFY19. Adjusted for forex, PAT was at ~Rs 9bn (+12/- 1% YoY/QoQ). Similarly, EBITDA margin came in at 24% post forex adjustment, still ~200bps above our expectation owing to normalized specialty spend. Revenue at Rs 77bn grew 16/12% YoY/QoQ led by improved traction in India and RoW segments (up 7/18% YoY and 20/11% QoQ). Although SUNP reported improved performance in 3Q, it continues to be in investment mode for its US specialty business owing to a ramp up in field force and heightened marketing activities for new product launches like Ilumya, Xelpros and Cequa. This is eroding overall business margins by 300-400bps, in our view. Driven by steady ramp up over the next two years, we believe this segment will break-even at the EBITDA level by FY21E. With ~12% revenue CAGR in the India business and US$ 1.8bn revenues in the US by FY21E, we model ~13% revenue CAGR over FY19-21E. The steady generic business, improved traction in the US specialty
HOLD
Q3 revenues were in line while a beat in profitability was mainly due to forex gain, lower tax rate and R&D spend. A ramp up of speciality pipeline is on track and promising. Going ahead, the management expects frontloading of cost to continue as the company continues to invest in specialty launches. This optical move is the culmination of the long ongoing endeavour of the management for a drift from generics to specialty in the backdrop of US headwinds. We believe this is the key differentiator vis-à-vis peers. However, despite this, we expect investorsto remain cautious in the backdrop of whistleblower’s complaint filing to SEBI and its possible outcome. These issues are likely to outweigh the company’s sound fundamentals in the near term. Our target price is Rs 460 based on 18x FY21E EPS of Rs 23.5 and rs 38 NPV for Ilumya.
HOLD
Outlook & Valuation: We decrease our revenues by 1% / 5.1% for FY19E /FY 20E on back of downgrade in domestic formulations business and Sun Pharma’s US business. We increase our EBDITAM by 110 bps to 23.9 % for FY 19E due to better gross margins, while we downgrade our EDBITAM by 140 bps to 25% for FY20E on account of downgrade in revenues and lower gross margin for FY20. We downgrade our EPS estimates for FY19E /FY20E by 30.2%/ 14% to Rs 11.7 / Rs21.3. On account of downgrade in earnings we revise our rating to HOLD and our price target to Rs 469 based on 22x FY20E (EPS Rs 21.3).
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About
Sun Pharmaceutical Industries Ltd.
NSE: SUNPHARMA | BSE: 524715 | ISIN: INE044A01036 | Sector: Pharmaceuticals and health care
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