Buy Sun Pharma, target of Rs 1035: India Infoline

Broking house, India Infoline is bullish on Sun Pharma. It has recommended buy rating on the stock with a target price of Rs 1,035.

The India Infoline report on Sun Pharma:

“Sun Pharma Industries witnessed yet another strong quarter with sales growing by 29.1% to Rs 5.37 billion and profitability growing by 26.1% to Rs 1.86 billion. Export formulations recorded a growth of 49% to Rs 1.8 billion with Caraco recording sales of USD 28 million for the quarter. Although domestic formulations growth (15.1% to Rs 2.8 billion) is coming off a high base of last year, we believe it was a touch on the lower side considering market growth of 14% for the quarter and Sun's dominant position in niche and fast growing segments.”

“We remain positive on Sun's business prospects given its lean cost structure and specialty focus. Between Sun and Caraco, they have 56 ANDAs pending approval (including 8 para IV filings), which includes a mix of orals and injectables. Sun has already announced para IV filing on Injectable Amifostine and Pantaprazole. The combined entity currently has 28 products in the US market. Sun & Caraco have already filed 14 ANDAs for the year and are targeting to file 30+ ANDAs by end FY07. We estimate US sales to witness a CAGR of 34.9% to Rs 6.67 billion over FY06-08. With cash in books worth USD 410 million, an acquisition is round the corner. We believe Sun will target acquisition of a distressed asset and turn it around in three-four years time.”

“For the European market, Sun is looking at a partnership model approach rather than setting up its own front end. Although domestic formulations sales were a bit disappointing in Q2 FY07, we expects sales to pick up in the second half and believe Sun has all drivers in place to achieve 4% market share over the next two years. We estimate Sun to witness earnings CAGR of 25% to Rs 8.9 billion over FY06-08. At Rs 912, the stock is trading at 26.4x FY07E EPS of Rs 34.5 and 21.2x FY08E EPS of Rs 43.1 on a fully diluted basis. We recommend Buy on the stock with a target price of Rs 1,035 (24x FY08E) an upside of 13.5%.”