Hold Sun Pharmaceutical Industries; target of Rs 470: ICICI Direct

ICICI Direct's research report on Sun Pharmaceutical Industries

Q1FY20 revenues grew 15.9% YoY to Rs 8374.4 crore (I-direct estimate: Rs 8161.6 crore) mainly due to 15.9% YoY growth in the US business to Rs 2947 crore (I-direct estimate: Rs 2578 crore). India formulations grew 7.5% YoY to Rs 2314 crore (I-direct estimate: Rs 2585.2 crore). EBITDA margins improved 159 bps YoY to 23.8% (I-direct estimate: 20.0%) mainly due to lower employee cost, forex gain and R&D spend. EBITDA grew 24.2% YoY to Rs 1995.6 crore (I-direct estimate: Rs 1632.3 crore). Net profit grew 40.4% to Rs 1387.5 crore (I-direct estimate: Rs 891.5 crore) mainly due to strong operational performance and lower tax rate (8.9% vs. 12.9% in Q1FY19).

Outlook

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 470 based on 18x FY21E EPS of Rs 23.4 and Rs 38 NPV for Ilumya.