Sep 13, 2017 04:50 PM IST | Source:

Sell Sun Pharmaceutical Industries; target of Rs 413: Geojit Research

Geojit Research is bearish on Sun Pharmaceutical Industries has recommended sell rating on the stock with a target price of Rs 413 in its research report dated September 12, 2017.

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Geojit's  research report on Sun Pharmaceutical Industries

Sun Pharma is India’s top drug maker and world's fourth largest specialty generic pharmaceutical company by revenue with 42 manufacturing facilities spread across 6 continents. US contributes 37% to the revenues. • Revenue plunged 25% YoY in Q1FY18 due to lower US and India sales. • US sales declined 42% YoY mainly on account of sharp fall in Taro sales (down 31% YoY) due to continued pricing pressure in the US and high base impact. • The domestic formulations business fell by 5% YoY primarily impacted by temporary disruption due to GST implementation. • EBITDA margin contracted 1760 bps YoY to 17.1% led by lower than expected US and India sales, decline in Taro margin and high base effect. Taro’s EBITDA margin fell to 50.5% from 62.6% in Q1FY17. • We reduce our revenue and PAT estimates for FY18/19E by 16%/14% and 69%/44%, respectively to factor in lower than anticipated growth in the US. • Given continued pricing pressure in the US generics business due to increased competitive intensity & customer consolidation and delay in Halol plant resolution restricting new launches, we change our rating to ‘SELL’ from ‘BUY’ with a revised target price of Rs 413 based on 20x FY19E PE.


Following a dismal US performance in Q1, we significantly lower US revenue growth rate. We expect US business to decline by 10% CAGR over FY17-19E due to persistent pricing pressure in the US generics business and delay in Halol plant resolution. Uncertainty over Halol plant resolution remains a key overhang on the stock, although, the company has taken remedial measures to address the observations raised by USFDA and awaits approval from the regulator. Despite a disappointing first quarter performance, the company has guided for a single digit decline in revenue for FY18 and expects an expansion in EBITDA margin to 20-22% in H2FY18 as against 17.6% in Q1FY18. We expect revenue to grow at a CAGR of ~1.4% over FY17-19E. However, PAT is expected to decline by 14% CAGR due to weak operating profitability and higher tax outgo. Hence, we change our rating to ‘SELL’ from ‘BUY’ with a revised target price of Rs 413 based on 20x FY19E PE.

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