Sun Pharmaceutical Industries' June quarter earnings are expected to be subdued on account of Ranbaxy integration. The country's largest drug company already warned about its full year earnings performance, saying FY16 revenue will remain flat or record marginal decline compared to FY15.
In addition to the above revenue impact, profits may also be adversely impacted due to certain expenses/charges arising out of integration as well as remedial actions, Sun said on July 20.
However, Taro Pharma earnings, which announced on August 6, may support a bit to overall earnings, feel analysts. The company will announce its Q1 earnings on August 11. Year-on-year numbers will not be comparable due to Ranbaxy integration.
According to average of estimates of analysts polled by CNBC-TV18, net profit is seen rising 0.6 percent sequentially to Rs 894 crore and revenue may increase 1.7 percent to Rs 6,262 crore in the quarter ended June.
The muted growth may be on account of continued disruption in US sales from Halol facility, which contributes around 10 percent to total revenue. In September 2014, the US drug regulator US Food & Drug Administration issued form 483 on Halol facility.
The company (on July 20) said remedial measures, which have been taking by the company to ensure continued 24x7 current good manufacturing practices (cGMP) compliance, have resulted in supply constraints for some of the products. It expects this situation to continue for some more time till all the remedial steps at Halol are completed.
"The remedial action at the Mohali, Dewas, Poanta Sahib and Toansa facilities is on track. We are working towards the fulfilment of the requirements of the US consent decree and will try to expedite the resolution for at least one of these facilities," it said.
Pricing pressure in the US and possible discontinuation of non-strategic low-margin Ranbaxy businesses may also affect earnings.
Sun Pharma also said it could incur one-time non-recurring integration charges in FY16 along with elevated R&D spend and investments for its ophthalmology specialty business in the US. Psoriasis drug MK-3222 could have an impact on earnings in FY16, it added.
The company's guidance included upside from Gleevec exclusivity (used in the treatment of chronic myeloid leukemia). On a positive note, Sun upped its Ranbaxy synergy guidance by 15-20 percent.
Operating profit in June quarter (earnings before interest, tax, depreciation and amortisation) may surge 68.6 percent to Rs 1,504 crore and margin may expand 950 basis points to 24 percent compared to March quarter. On year-on-year basis, margin may continue being impacted by one off costs related to Ranbaxy merger. Higher remediation costs due to Halol and R&D expenses may also impact margin.
Sun has planned research and development spending of 7-8 percent in current year. R&D cost in Q4FY15 was 9.4 percent of sales and 7.2 percent in FY15. R&D expenses included increased investments in phase 3 clinical development of MK-3222.
US business likely to disappoint due to impact of Halol facility, but it may be supported by Taro earnings.
US subsidiary Taro Pharma registered a 125.2 percent growth in net profit at USD 103.6 million and a 65 percent growth in revenue at USD 215 million. However, its sales volume decline 10 percent as a result of increase in competitor activity in the US. "We remain cautious of the ever-increasing pressure on business from strong competition and the continuing industry and customer consolidations," said Kal Sundaram, Taro’s CEO.
Indian business is estimated to grow 5 percent on sequential basis at around Rs 1,600 crore.
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