Sun Pharmaceutical Industries Ltd - Research Report

 

Private Client Research

Rating

Buy

Sector

Pharmaceuticals & Drugs

Company

Sun Pharmaceutical Industries Ltd

Reco Price
Rs. 505.00
Price Target (1 Year)
Rs. 606.00
Upside
20.00%

Date

May 29, 2017
Sensex
31109.28
CNX Nifty
9604.90

Exchange

Code

NSE
SUNPHARMA
BSE
524715

Concentration of Speciality division would increase and any positives from USFDA will lead to future growth of the company.

Integration of Ranbaxy:
In March 2015, Sun Pharma completed the acquisition of Ranbaxy, creating India’s largest and the world’s fifth largest drug maker. The integration between the India businesses of both Sun Pharma and Ranbaxy is on-track; nearly 2/3rds of the target synergies of $300 million have been achieved in FY2017 and the rest would be achieved by FY2018.

The company plans to improve R&D productivity and introduce innovative products to increase their share in the company’s revenues. The company also proposes to avoid very competitive and low margin products. These initiatives will have a positive impact on the top line due to reduction in cost of production. The company also proposes to improve capacity utilization in order to reduce outsourcing costs.

Halol Plant resolution expected:
Sun Pharma’s Halol plant, which makes up about 15% of the company’s sales to its largest market, the United States, received objections from the USFDA (the United States Food and Drug Administration). As a result, the company was compelled to stop manufacturing from this plant, which negatively impacted its US business. The Halol plant is one of the company’s important plants since it makes up about 7-9% of its total sales and has the capabilities to manufacture injectable products, which cater to a fairly niche and lucrative market for the drug maker. Sun Pharma has taken the following measures to not only resolve the objections raised by USFDA, but also to improve the efficiency of this plant:

  • Hiring experienced foreign consultants;
  • Hiring senior employees from other prominent pharma companies to join its quality and compliance team (e.g. Sun Pharma hired Jila Breeze in early 2015 as head of global quality and compliance. She has more than 25 years of experience with companies like Novartis and Apotex); and
  • Heavy investment in technology and remediation (one of the primary reasons for significant increase in legal cost over the last two years).

The company is also trying to shift its key products like Xelpros and Elepsia from Halol to other locations in order to avoid any negative impact on their sales.

Further capex plans for development of psoriasis drug:
Sun Pharma acquired worldwide rights to “Tildrakizumab” from Merck for an upfront payment of $80 million, milestone payments and tiered royalties. Merck will continue all clinical development and regulatory activities, which will be funded by Sun Pharma. Once final approval is received for the product, Sun Pharma will be responsible for all subsequent activities such as marketing, branding, etc. The drug is currently being evaluated in Phase 3 trials to treat chronic plaque psoriasis, a skin ailment. Sun Pharma will incur capex of $250 million for commercialization of this drug, which is expected to begin in early FY19.

Ramping up Specialty Pipeline:
The company has taken several initiatives to increase its specialty product portfolio, some of which are:

  • Acquisition of Ocular Technologies which gives access to global rights for “Seciera” used for treating Dry Eye Disease. New Drug Application (NDA) filing for the same is expected to be completed in Q3FY18.
  • Acquisition of branded oncology product “Odomzo” in December 2016. This product is approved in 30 countries globally including US, Europe and Australia. The company has initiated marketing in the US.
  • Acquisition of “Dusa Pharma” in US which gives the company access to patented drug-device combination useful for treating Actinic Keratosis, a dermatology ailment.
  • Acquisition of “InSite Vision” which focuses on developing new specialty ophthalmic products.
  • In November 2016, the company has launched “BromSite”, the first specialty ophthalmology product in US.

These initiatives will help the company improve its margins, enhance its share in the global specialty business and drive its long term growth.

Stock Data

CMP (Rs)
502.60
Face value (Rs)
1
52 Week Range (Rs)
854.95 - 564.00
Market cap (Rs Crores)
120649.11
Price To Book Value (x)
3.36
P/E Ratio
17.38
EV/EBIDTA (x)
10.79

One Year indexed Stock Performance

Sun Pharmaceutical Industries LtdSensex
Sun Pharmaceutical Industries Ltd
Return (%)
1m
6m
12m
36m
Absolute
-20.58
-28.86
-38.11
-14.32
Sensex
3.97
17.86
16.40
28.37

Shareholders

(in %)
31-Mar
Promoter
54.39
Public
45.61
Others
0.00
Total
100

+91 22 6639 3000
research@stockaxis.com

 

Industry

The Indian Pharmaceutical market has witnessed the kind of growth that no other sector has experienced in the last 1-2 decades. The sector is currently valued at around $27 billion, i.e. 3% of the global pharmaceutical industry in terms of value and 10% in terms of volume. It is poised to reach $55 billion over the next 4 years.

The Generic Drugs segment dominates the market with a 70% share in terms of revenues making it the largest segment in the Indian pharmaceutical sector. Similarly, Over-The-Counter (OTC) medicines constitute close to 21% and Patented Drugs occupy the remaining 9% of the total market. The Indian pharmaceutical market grew at a handsome CAGR of 17.5% over the past decade. It is now expected to grow by 15% annually over the next 5 years as against the global growth estimate of just 5%. Currently, India is second to the US in terms of the highest number of USFDA-approved plants in the world. In other words, a significant 22% of USFDA-approved plants in the world are Indian. Additionally, India has 1400 plants that have been approved by the World Health Organization Good Manufacturing Practices (WHO GMP) and 253 by the European Directorate of Quality Medicines (EDQM).

Profile

Sun Pharma is a global specialty pharmaceutical company with a significant presence in the US and India, and a footprint across 40 other countries. In Indian formulations, the company is a leader in niche treatment areas of psychiatry, gastroenterology, neurology, cardiology, nephrology, orthopedics and ophthalmology. The US business has been built typically on acquisitions and a focus on generics. It owns the largest product portfolio amid Indian players with as many as 572 new product filings; 413 approved and 159 pending approvals in the pipeline.

Profit & Loss Statement:- (Consolidated)
(Rs Crores)
Particulars
Mar-14
Mar-15
Mar-16
Mar-17
Mar-18E
Mar-19E
Income:-
  • Net Sales
  • Growth (%)
  • Total Expenditure
  • EBITDA
  • % Margin
  • Other Income
  • Operating Profit
  • Interest
  • PBDT
  • Depreciation
  • Profit Before Taxation & Exceptional Items
  • Exceptional Income / Expenses
  • Tax
  • Profit After Tax
  • Minority Interest & Share of Associate
  • Adjusted PAT
  • Adjusted EPS
  • 16080.36
  • -
  • 9120.95
  • 6959.41
  • 43.28
  • 592.59
  • 7552.00
  • 44.19
  • 7507.81
  • 409.23
  • 7098.58
  • -2517.41
  • 702.17
  • 3879.00
  • 737.53
  • 3141.47
  • 15.17
  • 27392.01
  • 70.34
  • 19615.54
  • 7776.47
  • 28.39
  • 637.89
  • 8414.36
  • 578.99
  • 7835.37
  • 1194.72
  • 6640.65
  • -237.75
  • 914.69
  • 5488.21
  • 948.83
  • 4539.38
  • 21.92
  • 28269.71
  • 3.20
  • 20043.52
  • 8226.19
  • 29.10
  • 714.67
  • 8940.86
  • 476.89
  • 8463.97
  • 1013.52
  • 7450.45
  • -685.17
  • 934.90
  • 5830.38
  • 1114.47
  • 4715.91
  • 19.60
  • 31578.55
  • 11.70
  • 21489.17
  • 10089.38
  • 31.95
  • 623.15
  • 10712.53
  • 399.80
  • 10312.73
  • 1264.75
  • 9047.98
  • 0.00
  • 1211.57
  • 7836.41
  • 871.93
  • 6964.48
  • 29.03
  • 30950.00
  • -1.99
  • 22900.00
  • 8050.00
  • 26.01
  • 2300.00
  • 10350.00
  • 300.00
  • 10050.00
  • 1300.00
  • 8750.00
  • 0.00
  • 1312.50
  • 7437.50
  • 1000.00
  • 6437.50
  • 27.55
  • 34045.00
  • 10.00
  • 24850.00
  • 9195.00
  • 27.01
  • 2500.00
  • 11695.00
  • 200.00
  • 11495.00
  • 1400.00
  • 10095.00
  • 0.00
  • 1514.25
  • 8580.75
  • 1150.00
  • 7430.75
  • 31.79
Source: Stockaxis Research, Company Data

Valuation

At the current market price (CMP) of Rs. 505, the stock is trading at 15.88x FY 2019E, which we believe is attractive considering investments made by the company in the specialty segment and the expected resolution of the Halol plant. At our target price of Rs. 606, the company trades at 19.06x, which is a fair valuation for the stock in the long term.

 

DISCLAIMERS AND DISCLOSURES:

Opulent Investment Adviser Private Limited is registered as an Investment Adviser with SEBI bearing registration Number INA000002462 as per Securities and Exchange Board of India (Investment Advisers) Regulations, 2013. Opulent Investment Adviser Private Limited offer investment advisory services to clients as well as prospects.

The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

Other disclosures by Opulent Investment Adviser Private Limited and its Research Analyst with reference to the subject company(s) covered in this report-:

Opulent Investment Adviser Private Limited does have any financial interest in the subject company: (NO)

Research Analyst or his/her relative’s have financial interest in the subject company: (NO)

Opulent Investment Adviser Private Limited and Research Analyst or his/her relative’s does have any material conflict of interest in the subject company: (NO)

Research Analyst or his/her relatives have actual/beneficial ownership of 1% or more securities of the subject company at the end of the month immediately preceding the date of publication of Research Report: (NO)

The research Analyst has served as officer, director or employee of the subject company: (NO)

Our salespeople and other professionals may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein.

This report is not for public distribution and has been furnished to you solely for your information and must not be reproduced or redistributed to any other person.

This report is not to be construed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It is for the general information of the users of stockaxis.com / Opulent Investment Adviser Private Limited.

While reasonable care has been taken in the preparation of this report, it does not purport to be a complete description of the securities, markets or developments referred to herein, and we do not warrant its accuracy or completeness.

Opulent Investment Adviser Private Limited, its directors, analysts or employees do not take any responsibility, financial or otherwise, of the losses or the damages sustained due to the investments made or any action taken on basis of this report.