HDFC Securities is bullish on Sun Pharma has recommended buy rating on the stock with a target price of Rs 545 in its research report dated August 14, 2019.
HDFC Securities' research report on Sun Pharma
Sun Pharma improved its operational performance on all parameters driven by a one-time generic order in the US and lower R&D spend. Revenue/EBITDA/PAT were up 16/14/31% YoY in 1QFY20. At US$ 424mn, the US revenues grew 16/-6% YoY/QoQ, largely driven by a one-time six-month contract during the last two quarters. The top-line is likely to normalize from 2Q onwards. However, overall US revenues were still ahead of expectations in 1QFY20. We believe specialty ramp-up remains the key contributor for Sun Pharma to grow its US top line over the next two years. Anticipate ~10% CAGR over FY19-21. Ilumya scale-up continues to happen at a slow rate. Post the restructuring in 4QFY19, India biz grew 8% YoY to Rs 23bn in 1QFY20. According to the management, the underlying growth remains at 12-13%. We continue to model India segment’s growth at high single digits with slowed IPM growth over the last 2 years. An 8.2% market share and leadership across all therapies make it difficult to outperform the IPM rate, in our view. EBITDA margin at 23% was up 807bps QoQ, 228bps higher than expectations as R&D spend fell to 5% of sales v/s expectation of ~7.5%. Discretionary specialty spend continues to weigh in on margin expansion.
We maintain BUY on SUNP following a beat to our estimates. Our TP is at Rs 545 (22x FY21E EPS). The execution in specialty segment is crucial.
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