Accumulate Sun Pharma; target of Rs 991: KRChoksey

KRChoksey's report on Sun Pharmaceutical Industries

"Sun Pharma’s Q3FY15 results were below our estimates on account of temporary supply constraints at its Halol plant. Revenues degrew by 0.4% YoY to Rs. 4,295 crs. However, Taro posted sales of USD 238mn, showed strong growth of 11% YoY & domestic business showed strong performance in line with our estimates. Ex Taro, US sales were hit by additional competition in Doxycycline hyclate & lack of Prandin exclusivity during the quarter. EBITDA degrew by 3.6% YoY to Rs. 1,928 crs & margins were at 44.9% contracted by 150bps due to higher R&D expenses which includes significant investments on account funding clinical development of Tildrakizumab. Taro posted operating margin of around 67% of sales. However, base business margins were hurt due to compliance cost related to Halol facility, transaction & integration related cost to Ranbaxy merger. Reported PAT stood at Rs. 1,425 crs degrew by 6.9% YoY due to lower sales & operating performance. EPS for the quarter stood at Rs. 6.9."

Valuation: "We have incorporated Ranbaxy financials in our FY16 & FY17 estimates as the merger deal is likely to be closed by FY15 end. We believe synergies from Ranbaxy merger will arise from FY17 onwards. We are positive on the stock on account of strong domestic business & its capability to strengthen Derma franchise. We maintain ‘ACCUMULATE’ rating on the stock with the target Price of Rs 991 at 25xFY17E", says KRChoksey research report.

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