Hold Sun Pharma; target of Rs 490: Centrum

Centrum's research report on Sun Pharma

We maintain our Hold rating on Sun Pharma (SPIL) and maintain our TP of Rs490 based on 26x March’19E EPS of Rs18.7. SPIL’s Q2FY18 results were in-line with our expectations. The performance was impacted by the pricing pressure in the US and impact of GST in the domestic market. The drug maker’s revenue declined 20% YoY, margins narrowed 1,760bps to 20.7%, and net profit fell 60%. SPIL is facing supply constraints at its Halol facility. The management has guided for a single digit decline in revenue and EBIDTA margin of 20-22% for H2FY18. Key upside risks to our assumption include higher revenues from the US market and key downside risk includes regulatory risks for its manufacturing facilities catering to the global markets.

Outlook
We maintain our Hold rating on SPIL and maintain our TP to Rs490 based on 26x March’19 EPS of Rs18.7 and downside of 5.2% from the CMP. Key positive risks to our assumptions would be higher growth in the US market and key negative risk would be regulatory risks for its manufacturing facilities. We recommend a switch to Aurobindo or Cipla.

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