ICICI Direct recommended hold rating on Sun Pharmaceutical Industries with a target price of Rs 460 in its research report dated May 29, 2019.
ICICI Direct's research report on Sun Pharmaceutical Industries
Revenues grew 2.7% YoY to Rs 7163.9 crore (I-direct estimate: Rs 7614.2 crore). A 31.7% YoY growth in the US business to Rs 3123 crore (I-direct estimate: Rs 2632 crore) led to one-off generic supply to customer being largely offset by 43.9% decline in India formulations to Rs 1101 crore (I-direct estimate: Rs 2158.9 crore). Domestic business was impacted due to one-off distribution change of Rs 1085 crore. EBITDA margins were at 14.2% against 24.1% in Q4FY18 (I-direct estimate: 23.3%) mainly due to one-offs. EBITDA de-grew 39.6% YoY to Rs 1016.8 crore (I-direct estimate: Rs 1772.3 crore). Net profit de-grew 53% to Rs 615 crore (I-direct estimate: Rs 968.7 crore).
The management expects continuous frontloading of cost as the company enters the thick of investment activities for specialty launches. This optical move is the culmination of the long ongoing endeavour of the management for a drift from generics to specialty in the backdrop of US headwinds. We believe this is the key differentiator vis-à-vis peers. However, despite this, we expect investors to remain cautious in the backdrop of whistleblower’s complaint filing to Sebi and its possible outcome. These issues are likely to outweigh the company’s steady fundamentals in the near term. Our target price is Rs 460 based on 18x FY21E EPS of Rs 23.4 and Rs 38 NPV for Ilumya.
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