Limited competition, Forex gains pump Taro nos: Sun Pharma

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In an interview to CNBC-TV18, Uday Baldota of Sun Pharma says the results of Taro, have been boosted by lack of competition and Forex gains. With very strong numbers' reported by Taro this quarter, Badola says its delisting process is still ongoing.

Further, he says the drug maker is still awaiting US FDA nod on Prandin generic.

Below is an edited transcript of Uday Baldota's interview to CNBC-TV18. Also watch the accompanying video.

Q: Can you take us through Taro's performance and can one infer that Q3 will be a lot more boosted because of Taro's performance?

A: Taro delivered good numbers; sales growth for Taro in the quarter was more than 30%, they delivered a healthy margin, part of the margin was also from Forex gains that they reported. Overall they have reported good numbers; there is an improvement over the earlier quarter and years, whether this will continue or not in the next quarter is difficult to say..

Q: Given the kind of performance that you have seen in Q2, is it likely that you might exceed the FY12 guidance of 28% to 30% that you have given because you have already achieved about 48% of that in H1?

A: Currently, we are retaining our guidance to 28% to 30% of sales growth.

Q: Your ex Taro sales is strong at 17%, margins have also increased sequentially, pro-rata can this kind of margin be sustained?

A: We have indicated that this part of the margin improvement is also on account of the foreign exchange movements which are favourable for the company. So, when people evaluate the performance of the company they have to necessarily remove that part and see while performance has been reasonably good. However, keeping it is also important to look at how we would perform in the rest of the year.

Q: How has the domestic sales performance been and what would you say about the sales in the coming quarters?

A: When you look at this quarter as well as the first half we have grown by 18% compared to the earlier year and this growth is inline with our expectation. In fact this quarter we have increased our prescription share with another class of doctors. So, overall it's a reasonably good performance.

Q: In H2 what is likely to be the US growth ex of Taro and what might be the significant contributors?

A: Generally, we don't give business segment wise rate of growth. All the growth that we are likely to achieve across all business segments is the basis on which we have given 28-30% sales growth guidance.

Q: What about Taro's delisting? Is that a process that is on and how does it pan out?

A: We made an offer to buy out all the outstanding shares of Taro that are currently not owned by Sun Pharma or its affiliates. So that process is on. What we understand from Taro's announcement is that they have appointed a special committee of independent directors who will evaluate the Sun Pharma proposal and take appropriate steps. All of us need to wait for the next update from Taro on the process.

Q: And their recommendation will be very crucial to investors' response?

A: Absolutely.

Q: You also indicated that Taro is currently benefiting from limited competition opportunities and that's one of the reasons why Q2 look so smart. Could you tell us how much was the benefit and when will all this get excluded?

A: When we look at Taro's announcement for the April-June quarter as well as July-September quarter, their announcement talk about that they are benefiting out of the current market opportunities and some of this may not be sustainable. They haven't quantified the benefit, so it is difficult for us to do that and how long this will last even that hasn't been quantified. Hence, in absence of that it's difficult for us to give any specific guidance on that.

Q: Could you give us a word on prandin generics?

A: We still don't have an approval on prandin. We are awaiting for it.

Q: Can you update us on Caraco's problems with the US FDA? At what stage are they in terms of getting resolved?

A: There is no specific timeline on this because several parties involved in ensuring that Caraco returns to normalcy while we are very hopeful that we should be able to resolve this, there is no specific date.

Q: With respect to Taro's management guidance to its own investors, what is the timeline?

A: Subsequent to June 14, Caraco is now a 100% owned company by Sun, so effectively there are no minority investors in Caraco. There is no public guidance that Caraco has given on this.

Q: When we spoke about the delisting you said that you are still awaiting the word from the management. How much time does Taro management have?

A: There is a well laid out process for companies that are listed in the US to go private. So, the committee of independent directors would go through that process. There is no specific timetable on that; there are just few steps that they need to take. So, we need to wait for an update on the steps that the committee will take. There is no specific end date to it.

Q: Are margins ex of forex gain or the contribution from Taro sustainable at these 35% levels or can they be improved from here? What is the outlook there?

A: Generally, we don't give any indication of the kind of margins that the business is likely to deliver. However, we have explained to people that there is a Forex gain impact both at the sales level and as well as the material cost level because of the change in the foreign exchange and to the extent that foreign exchange will either remain here or probably move in an opposite direction. There could be an impact in Q3-Q4 and going forward, there is an impact of foreign exchange even up to the EBITDA level largely on account of closing stock valuation or sales realization being margining higher because dollar is now close to Rs 50.

Q: The observation which is made after accounting for and removing the Forex benefit as well there has been an improvement in margins?

A: There has been an improvement in margins even after discounting all of that. Whether that margin will sustain is generally difficult for us to say.