Reliance Securities's report on Sun PharmaceuticalsTaro’s 2Q results is reflective of 6th successive quarter of declining volumes (adjusted for price benefits in 2QFY15) led by customer consolidation, increasing competitive intensity and overall industry consolidation. Taro is a key strategic asset for Sun and contributes significantly to the latter’s margins. Steady build up of cash and ANDA pipeline are medium term positive which allow for strategic flexibility. However, owing to structural headwinds in Sun’s base business, wemaintain NEUTRAL with a Fair Value of Rs 940.Outlook and ValuationThe continuous decline in performance remains in-line with our expectation despite the price rise taken by the company in wide array of products on the back of shrinking volume growth. While management asserts that price adjustment is now fully reflective in the sales, we remain less optimistic. Assuming best case scenario of 5 launches in FY16E, we expect 50% to be in commoditized oral category making it difficult for Taro to maintain high base growth rate. We forecast Taro to report 7% revenue CAGR over FY15-18E. We maintain NEUTRAL with a Fair Value of Rs 940, says Reliance research report.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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