27 May 2020
4QFY20 Results Update | Sector: Healthcare
Sun Pharma
Estimate change
TP change
Rating change
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
SUNP IN
2,399
1081 / 14.5
505 / 315
-8/21/29
3630
CMP: INR450
TP: INR525 (+17%)
Buy
4Q: Miss on profitability due to product mix and COVID-19
Initial signs of uptick in prescription trends in Specialty portfolio
Financials & valuations (INR b)
Y/E MARCH
2020 2021E 2022E
323.3 353.5 390.8
Sales
64.6 74.6 85.8
EBITDA
39.5 47.5 56.5
Adj. PAT
13.6 15.3 16.6
EBIT Margin (%)
16.4 19.7 23.5
Cons. Adj. EPS (INR)
8.7 20.4 18.9
EPS Gr. (%)
188.1 201.0 220.1
BV/Sh. (INR)
Ratios
Net D:E
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
EV/EBITDA (x)
Div. Yield (%)
FCF Yield (%)
EV/Sales (x)
0.03
9.1
10.3
23.5
27.4
16.1
0.8
2.7
3.2
0.05
10.1
11.1
18.5
22.8
14.1
0.8
0.8
3.0
0.00
11.2
11.1
17.1
19.2
12.0
0.8
3.2
2.6
Post the reduction in prescriptions in the Specialty portfolio at the start of
lockdown, a gradual improvement has been witnessed in the same with the
easing of the lockdown. The stockpiling of medicines related to chronic
therapies has been offset, to some extent, by a lower patient-doctor
connect for acute therapies in the key markets of SUNP. The addition of MRs
would further support growth, particularly in Domestic Formulations (DF).
We lower our FY21/FY22E EPS estimates by 6.8%/2% to factor the COVID-
19-led slowdown and revise our price target to INR525 (from INR535 earlier)
on a 22x 12M forward earnings basis. We remain positive on SUNP on
account of a gradually improving outlook for the Specialty portfolio, a robust
ANDA pipeline, and increasing market share in DF. Maintain
Buy.
Benefit of better operating margins offset by higher depreciation, lower
other income on YoY basis
Shareholding pattern (%)
As On
Promoter
DII
FII
Others
Mar-20 Dec-19 Mar-19
54.7
54.6
54.4
19.6
19.1
17.3
12.8
13.9
15.5
12.9
12.5
12.8
FII Includes depository receipts
4QFY20 sales were up 14.7% YoY to INR80.8b (in-line), led by India sales
growth of 115% YoY to INR23.7b (29% of sales), partially offset by decline in
US sales (34% of sales; USD375m) by 15% YoY.
DF sales saw a one-time impact of INR10.8b from changes in distribution in
4QFY19. Adjusting for this, DF sales grew 8% YoY. EM sales grew 8% YoY to
USD187m (17% of sales), while RoW sales stood almost flat YoY at USD155m
(14% of sales).
Taro posted sales of USD175m, down 3% YoY.
The gross margin (GM) came in at 71.5% (-240bp YoY, -110bp QoQ).
However, the EBITDA margin at 17.3% (our est.: 21%) expanded 380bp YoY,
led by lower other expenses / employee cost (-450bp/-190bp YoY as a
percentage of sales). Accordingly, EBITDA at INR13.9b (our est.: INR17b) was
up 47% YoY.
Exceptional loss was reported, related to: a) restrictions on the central
excise refund (INR1b) b) the settlement of allegations (INR1.6b), and c) forex
loss (INR1.4b).
Adj. PAT grew at a lower rate of 7.4% YoY to INR7.4b (our est.: INR10.2b) on
higher depreciation, lower other income, and a higher tax rate.
FY20 sales / EBITDA / adj. PAT was INR323b/INR65b/INR40b, up
13%/14%/9%, led by better revenue growth in DF and controlled cost.
The Global Specialty business was at USD126m for the quarter and improved
sequentially despite anticipated seasonal decline in Absorica/Levulan.
While the COVID-19 lockdown has impacted the prescription trend in Cequa,
a prescription uptick has been observed in the recent week.
Specialty R&D accounted for 24% of the total R&D spend for the quarter.
Clinical trials for Phase III of the new indication of Illumya have been delayed
due to COVID-19.
Highlights from management commentary
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Tushar Manudhane - Research Analyst
(Tushar.Manudhane@MotilalOswal.com); +91 22 6129 1536
Hitakshi Chandrani - Research Analyst
(Hitakshi.Chandrani@motilaloswal.com);
+91 226129 1557/
Bharat Hegde - Research Analyst
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.