Buy Sun Pharma; target of Rs 790: Motilal Oswal

Motilal Oswal's research report on Sun Pharma

The USFDA conducted an inspection at SUNP's Mohali plant during 10-14 September 2018, and issued Form 483 with two observations. We believe SUNP will be able to address these observations with a strong response, and subsequently take a corrective and preventive action (CAPA) plan on the same. Following this, we await product approvals and/or the Establishment Inspection Report (EIR) for regulatory compliance at Mohali. We remain positive on SUNP on the back of better traction in specialty portfolio, healthy growth in the generics business after offsetting the decline in base business, and better-than-industry growth in domestic formulations. Maintain 'Buy' with a price target of INR790 at 27x 12M forward earnings (unchanged).

Outlook

We maintain our estimates and value SUNP at 27x (unchanged) 12M forward earnings arriving at a price target of INR790. We believe that discount to its 3-year average P/E should narrow going forward as: (a) share of its specialty portfolio increases; (b) downside in base business erosion reduces; (c) healthy pipeline of ANDAs is pending for approval; and (d) there is a sustained outperformance in the domestic formulation market. Re-iterate ‘Buy’.