Hold Sun Pharma; target of Rs 850: ICICIdirect

ICICIdirect.com's report on Sun Pharmaceutical Industries
"Sun Pharma has provided its first integrated FY16 guidance in a surprise pre-earnings conference call. The management also discussed other issues like R&D, compliance issues at Halol as well as all four Ranbaxy facilities and synergy benefits. It expects muted revenue growth in FY16 and also some dents in its profitability on account of the Ranbaxy integration and various remedial measures at facilities under the USFDA embargo. It expects revenue impact mainly due to portfolio rationalisation owing to discontinuation of some of Ranbaxy’s nonperforming assets and supply disruption due to ongoing remedial measures at Halol. Profitability margins are expected to be impacted by higher remedial cost and integration charges. The management has also indicated that most remedial, integration and rationalisation costs are one-offs. Post these measures, it believes the company will be well placed to register higher than industry growth rates in subsequent years."

"In sync with the muted guidance, we have revised our FY16E sales, EBITDA and PAT estimates by 15%, 29% and 38% respectively. Similarly we have reduced our FY17E sales, EBITDA and PAT estimates by 12%, 11% and 15%, respectively. We believe the company is at an inflection point as the strategic decisions and integration related costs at Ranbaxy besides successful resolution of Halol issue will determine sustained profitability in future. The management also expects growth to normalise from FY17 onwards based on the current set of actions. However, due to uncertainty post the Ranbaxy consolidation and volatile history of Ranbaxy, we are sceptical of the company’s near to medium term growth. The hitherto seamless journey of Sun seems to be a thing of past as the company prepares to fathom the Ranbaxy integration and Halol type compliance issues. Our revised target price is Rs 850 based on 26x FY17E EPS of Rs 32.6. We expect normalcy to return from Q1FY17 onwards", says ICICIdirect.com research report.

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