Sun Pharma

Sun Pharma plunged to a 3.5 year low on the back of its poor show for Q4FY17.  The disappointment was on many fronts – poor Q4FY17, brokerage houses cutting targets and the company management too indicating a single-digit sales growth in FY18.

The company’s Halol unit has been under the US FDA scanner for some time now and due to this, exports to USA have been affected and so is the launch on new products. Till the FDA approves this plant, no new approvals will be given to products from this unit. Pricing pressure is also leaving a telling impact on the margins as the pharma companies get more and more consolidated, it gives them a much higher bargaining power than sole units like Sun. The company expects some seven of its products with exclusivity to see price declines.

It is like a Catch 22 situation – it needs to spend on R&D to develop a new product but at the same time, falling topline would mean an additional expenditure will lead to more pressure on margins. The company is working on a drug which can be used to treat psoriasis but once again, cannot do much until FDA clearance comes in but if it does get the nod, then this could help change the story.

CLSA has downgraded Sun Pharma to “sell” and has cut the target price from Rs.860 to Rs.500 . Morgan Stanley has also slashed its target price by 32%.

The company ended Q4FY17 with a consolidated income from operations at Rs.6825 crore, de-growth of 8% over same quarter last year. • India sales were up 10% (YoY) at Rs.1,916 crore (28% to total sales) but US finished dosage sales were down 34% at $ 381 million – USA contributes 37% to total sales. Emerging markets too did well, up 46% at $181 million (18% to total sales) – this includes the contribution from JSC Biosintez acquisition in Russia while Rest of World sales grew 38% (11% to total sales). 

There was an Other operating income for the quarter at Rs. 312 crores which includes a milestone payment from Almirall S.A (Spain) as part of the licensing agreement for the development and commercialization of Tildrakizumab for psoriasis in Europe.

EBITDA came in at Rs.1727 crore, down 27% and margins slipped from 30.22 % to 23.46%. Tax outgo was down from Rs.417 crore to Rs.44 crore. It ended the quarter with a consolidated net profit at Rs.1223 crore, down 14%.  Interest outgo during the quarter was down 56% at Rs.45 crore. R&D investments were at Rs. 600 crores (8.8% of sales) compared to Rs. 711 crores (9.6% of sales) for Q4FY16.

Equity stands at Rs.240 crore and EPS for the fiscal as at Rs.29 crore. Reserve is at a very healthy at over Rs.35,000 crore and cash at over Rs.6800 crore.