See 20% annual returns from Sun Pharma: IIFL Instl Eq

Shares of Sun Pharmaceutical has risen nearly 5 percent, up over half a percent today, after its Israel-based subsidiary reported better-than-expected results for the quarter ended December 2012. The stock also got a fillip after the US FDA approved the sale of its generic version of Doxil.

Doxorubicin hydrochloride liposome injection is currently on the FDA's drug shortage list. According to pharma analyst Bino Pathiparampil of IIFL Institutional Equities Sun Pharma could make USD 100 million from Doxil. “We see 20 percent return on annualised basis from the current market price for Sun Pharma,” he told CNBC-TV18 in an interview. Meanwhile, CLSA expects niche opportunities in the US market to provide boost to the earnings growth for Sun Pharma over the coming years though operating earnings growth is likely to be slower in FY14. Research firm Credit Suisse maintained an overweight rating on the stock with a target price of Rs 840. "The Doxil opportunity is still under-appreciated by the market, as it's likely to remain a low competition product and now becomes part of the base business," Credit Suisse reasoned. Below is the edited transcript of his interview to CNBC-TV18 Q: How big trigger is Doxil for Sun Pharma, materially? A: The news that came out over the last couple of days has been pretty positive for the stock. The approval of Lipodox, which we originally thought was a one-off opportunity last year. Now it extends into FY14 as well. The company could make upto USD 100 million in the United States (US) just from this one product in FY14, which could be substantially material. Taro Pharma, Sun Pharma’s US subsidiary reported in US, there again reported a great set of numbers with earnings before interest, tax, depreciation, and amortisation (EBITDA) margin further expanding from 54 percent to 58.5 percent. There is a top-line growth as well. This has been materially above what people have been expecting. Due to competition reentering the market in case of some products, some of us were expecting margins to come off. So overall, the numbers look good. What earlier looked like a flat year for Sun Pharma is now looking like a growth year. The company should deliver a good growth in FY14. Q: How much upside do you see first and beyond the Rs 750 price for the calendar year 2013? A: I would wait for the company to report and to look at numbers in detail. However, given the kind of growth that company is delivering, I would expect a 20 percent return on an annualised-basis from this stock. Q: How are you approaching Revamilast and what kind of price potential do you see for Glenmark? A: Glenmark’s reported numbers were pretty good in most markets, like US, domestic and other emerging markets (EMs). The company has surpassed expectations. However, ‘Revamilast’ which was possibly the most advanced in their New Chemical Entity (NCE) pipeline has been shelved as of now, atleast for one indication. Also, as our slight concern was that despite the growth company did not show any significant improvement in cashflows. If the kind of growth that they delivered continues then we should see an upside to the stock price. Ofcourse some major development around NCE side in terms of a new out-licensing or of some of the candidates going through successful phase II b trial could be a trigger. Improvement in cash flows could further rerate the stock. Q: Last quarter was very strong for Cipla. Do you expect a repeat of that or numbers to be a little more subdued than the previous quarter? A: I expect this quarter number to be a lot more subdued compared to last couple of quarters. Last couple of quarters had the benefit of Lexapro one-off in the US. W It is unlikely to be there this quarter, hence both revenue as well as margins may show a significant decline quarter-over-quarter. However, year-on-year I think a reasonably good performance should continue. The company is getting its strategy right in place after several years where the focus was not on the right things. So, those benefits should flow through or start flowing through and year-on-year that should reflect. Also read: Sun Pharma gains further on Credit Suisse overweight report