Buy Sun Pharma;target of Rs 940: Religare

Religare's research report on Sun PharmaSUNP’s operating performance for Q3FY16 was in line with estimates while PAT at Rs 14bn (+258% YoY) was propped up by a lower tax rate (10% vs. 19%QoQ). Ex-Taro, we believe base business margins declined by ~150bps QoQ, but are likely to rebound in the ensuing quarters as gGleevec ramps up. This in turn should drive medium term growth for the company. We resume coverage on SUNP with HOLD and a Mar’17 TP of Rs 940, valuing the stock at 25x FY18E EPS. (a) Set to invite USFDA for a re-inspection at Halol in Q1FY17. (b) Sumatriptan sales suspended temporarily due to Halol facility upgrade (IMS shows zero sales in Oct-Dec’15 quarter). (c) gGleevec market share ramp-up to be gradual, given Novartis’ special pricing schemes and patient resistance. (d) India sales to normalise ahead. (e) Consolidation of GSK’s opiates business lead to higher API sales. (f) SUNP has 156 ANDAs pending approval. (g) SUNP received target action dates for products filed from Halol, (h) Tax rate to increase gradually.

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