HDFC Securities is bullish on Sun Pharma has recommended buy rating on the stock with a target price of Rs 600 in its research report dated May 29, 2019.
HDFC Securities' research report on Sun Pharma
Revenue growth was muted during the quarter due to a one-time impact of Rs 11bn on domestic sales with the shift to direct distribution (from AML earlier). Adjusting for this, sales would stand at Rs 85bn (+18/7% YoY/QoQ). India sales at Rs 11bn were down 44% YoY. Adjusting for the one-off, sales grew 11% YoY. The co launched 4 new products during the quarter and continues to hold the highest market share in IPM (~8.2%). We expect the co to grow at 9-10% CAGR over FY19 -21E driven by its strong branded franchise. The impact of change in distributor has been borne and won’t persist. US sales at US$ 443mn grew 22% QoQ boosted by a new contract for certain generics as well as traction gained in Taro. With the new DTC marketing ongoing for Ilumya and field force ready for Cequa’s launch (2QFY20), the mgmt. is confident in ramping up its specialty segment consistently over the next few years. We expect the segment to breakeven by FY22E. Expenditure on front-end will remain unabsorbed until then, thereby denting overall profitability. EBITDA was at Rs 10.2bn with margin at 14.2% (- 994/962bps YoY/QoQ). The one-time hit on sales due to change in distributor impacted profitability severely during 4Q. PAT stood at Rs 6.4bn (-51/32% YoY/QoQ).
We maintain BUY on SUNP following a miss to our estimates owing to a one-off. Our TP is revised to Rs 600/sh (22x FY21E EPS + Rs 40/sh for specialty). Hopes are hinged on a ramp up in specialty business.
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