Hold Sun Pharma ;target of Rs 825:ICICI Direct

ICICI Direct's research report on Sun PharmaRevenues de-grew 14.8 YoY to | 6837.6 crore (I-direct estimate: | 7064.1 crore) mainly due to a decline in US sales. US sales declined 23.4% YoY to | 3315.8 crore (I-direct estimate: | 3362.7 crore) primarily due to competitive pressure in existing products and temporary supply constraints from Halol facility. Domestic sales increased mere 1.3% YoY to | 1818.7 crore (I-direct estimate: | 1996.7 crore) due to inventory adjustment and slow growth in the acute segment led by withdrawal of bonus offers and a soft season EBITDA margins declined 837 bps YoY to 28.3% (I-direct estimate: 27.2%) due to an increase in employee cost and other expenditure Net profit declined 45.4% YoY | 1106.7 crore (I-direct estimate: | 1194.3 crore) mainly due to a low operational performanceMore than the subdued Q2 results, the main concern is the fate of the Halol facility, which has been classified as official action indicated (OAI) post the first inspection, revealed by the management. This indicates a higher chance of issuance of warning letter by the USFDA. Thus, until Halol resolution, US sales are likely to remain under pressure even though the company has sufficient bandwidth to make alternate arrangements. Other developments in the field of biosimilars and acquisitions are likely to be overshadowed by this glaring issue. The hitherto seamless journey of Sun seems to be a thing of past as the company prepares to fathom Halol type compliance issues and Ranbaxy integration. Our target price of | 825 is based on 24x FY18E EPS of | 34.4. We maintain HOLD until any positive development regarding Halol. For all recommendations, click here Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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