Reduce Sun Pharmaceutical Industries; target of Rs 479: Prabhudas Lilladher

Prabhudas Lilladher's research report on Sun Pharmaceutical Industries

SUNP 1QFY21 revenue were lower than our estimate because of US specialty and Taro sales while adj. EBITDA margin positively surprised at 23.1% (PLe :20.4%) due to 1) lower R&D spend (5.6% of sales v/s 6.4% QoQ) and 2) lower SGA costs led by travel restriction on employees and lower marketing expense (21% of sales v/s 29% QoQ). We believe even after Taro’s settlement with DOJ for generic price matters, US biz still has several concern related to 1) inconsistent performance of US specialty products, 2) Taro’s declining revenue trend and gross margin due to erosion in derma portfolio, 3) lack of key approvals due to regulatory issues in Halol and 4) further R&D in Ilumya for new indications.

Outlook

With only India formulations contributing to growth while other regions lacking in consistent performance, we downgrade our rating to Reduce (earlier Hold) but retain TP at Rs479 (PE 21x of FY22E).