Moneycontrol Bureau
Investors continued to buy shares of Sun Pharmaceutical Industries Tuesday as brokerages bet on its subsidiary Taro's performance. The stock gained 1.5 percent intraday.
With retaining high conviction buy on Sun (with target of Rs 1,130), CLSA said Taro Pharma’s contribution to Sun’s profits is likely to remain high at 25 percent despite fall in sales growth and margin contribution.
In a bear case, the brokerage expects Taro’s sales growth in single-digits and margins at 50 percent (65 percent currently) by FY17.
Meanwhile, CreditSuisse has maintained its outperform rating as the brokerage believes new set of price increases will boost Taro's EBITDA by 4 percent.
Taro has pushed through price increase in two products - Enalapril Maleate (treats high blood pressure), and Econazole nitrate cream (antifungal medication). According to Credit Suisse, both the drugs together could add incremental sales of USD 20-25 million and boost Taro's current run-rate of sales by 3 percent and EBITDA by 4 percent.
Taro is the industry leader in the highly concentrated, high-entry-barrier US generic derma market. Taro derives around 65 percent of its sales from products approved in the 1990s where no fresh entrant has received an approval in the last five years.
Taro, which is owned by Sun Pharma with 69 percent equity stake, has taken around 86 percent price increase on average product portfolio starting CY11. Taro has a 17 percent market share in the USD 5 billion US generic derma market (growing at 6 percent CAGR) while the top 6 generics account for 70 percen of the market.
Taro has filed 29 abbreviated new drug applications (ANDA) in the last three years which could be approved over the next 4-5 years.
At 11:22 hours IST, the scrip of Sun Pharmaceutical Industries was quoting at Rs 958.00, up Rs 11.65, or 1.23 percent on the BSE.
Posted by Sunil Shankar Matkar
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