Sun Pharmaceutical Industries Ltd. RESULT UPDATE 14th August 2017 22 nd May 2017
Aug-16 Oct-16 Dec-16 Feb-17 Apr-17 Jun-17 Aug-17 Please vote for us in Asiamoney Brokers Poll 2017: https://www.euromoney.com/article/b13j49qfcr6j pp/asiamoney-brokers-poll-2017-vote-now India Equity Institutional Research II Result Update Q1FY18 II 14th August, 2017 2 In the twilight CMP INR 450 Target 550 Potential Upside 22.12% Market Cap (INR Mn) 1,082,807 Recommendation BUY Sector Pharma Result highlights Net Sales stood at INR 61,667 Mn which was down by 23% y-o-y and 9.6% q-o-q. The decrease in revenues was due to low business in North America which was down by 42% and India business which witnessed degrowth of 5%. However, the company has registered healthy growth of 9% and 37% Y- o-y in Emerging markets and RoW region. EBIDTA stood at INR 10,957 Mn which degrew by 62.5% y-o-y and 25.6% q-o-q. Low revenues and increase in employee cost led to contraction of margins by 320 bps Q-o-Q and 1779 bps Y-o-Y. The company has reported margins of 18% in Q1FY18 against 21% in Q1FY17 The company has reported loss of INR 4,249 Mn against the profit of INR 11,482 Mn in Q4FY17.PAT Margin for the quarter stood at -8% down by 2885 bps q-o-q and 4652 bps y-o-y. The company has incurred a onetime expense of INR 950 crores for certain plaintiffs related to the Modafinil antitrust litigation in the U.S. Excluding the Modafinil settlement the net profit was down 74% over Q1FY16. This quarter the company has delivered a disappointing performance due to temporary disruption in its India business due to GST implementation, a challenging USgeneric pricing environment and the Modafinil settlement MARKET DATA Shares outs (Mn) 2399 EquityCap (INR Mn) 2399 Mkt Cap (INR Mn) 1082807 52 Wk H/L (INR) 833/445 Volume Avg (3m K) 5919.6 Face Value (INR) 1 Bloomberg Code SUNP IN SHARE PRICE PERFORMANCE 125 100 KEY FINANCIALS Particulars (INR Mn) FY15 FY16 FY17 FY18E FY19E Revenues 272,451 276,400 302,643 294,290 311,089 EBITDA 79,494 84,073 87,751 80,865 86,458 Net Income 45,253 46,415 56,502 49,542 52,506 EPS 18.8 19.3 23.5 20.6 21.9 P/E (x) 31.4 28.1 26.4 30.1 28.4 EV/EBITDA (x) 18.0 16.2 15.3 16.0 14.3 RoCE (%) 24.2 19.1 17.2 14.8 14.1 Source: Company, Disappointing quarter with negative margins : The largest Pharma company of India has delivered disappointing results with a de-growth of 23 % Y- o-y and 9.6% due to high base business in FY17 which had higher revenues from its ggleevec which had 180 days exclusivity rights in the US. In Q1FY18, The company has faced lot of hurdles such as increasing competitions in its key products in the US, channel consolidation and appreciating Rupee altogether has made a dent in revenues. 75 50 Sensex Sun Pharma Ltd North America s business witnessed steep decline: The North America s business has witnessed sharp fall with sales at USD 350 Mn in Q1FY18 with a de-growth of 42% Y-o-Y due double digit price erosion on its base business and lack of meaningful launches in the quarter. Sunpharma s largest manufacturing unit at Halol is under USFDA radar. Halol plant has maximum filings for the US. The Halol plant issue is not yet resolved which has led to less approals in the quarter. Along with remediation issue the company is also facing high price erosion in its base portfolio leading to low revenues from its US business. US accounts nearly 37% to the company s total sales. Low revneus from its major market has put a dent on the topline. MARKET INFO SENSEX 31214 NIFTY 9711 Business in Emerging markets registered growth : The company recorded sales of USD 168 mn which grew 9% Y-o-Y. The growth was partly boosted by the consolidation of the Biosintez acquisition in Russia. Emerging markets accounts 18% to the total sales of the company. Rest of World (ROW) markets excluding US and Emerging Markets were US$ 115 million in Q1FY18, a growth of 37% Y-o-Y accounting for approximately 12% of revenues. The growth was partly boosted by the consolidation of revenues from the acquisition of 14 brands from Novartis. Domestic business de-grew due to GST destocking: The domestic business witnessed de-growth of 5% due to GST destocking. SHARE HOLDING PATTERN (%) Particulars Jun 17 Mar 17 Dec 16 Promoters 54.38 54.39 54.39 FIIs 19.74 21.28 21.76 DIIs 12.86 12.2 12.21 Others 13.02 12.14 11.65 Total 100 100 100 433 ANDA S Approved 151 Pending ANDA approvals
Valuations & Views:. We believe that the growth momentum for the company will pick-up post FY18 on the back of improved profitability from the unlicensed drugs such as Odomzo and Restatis which has a potential to generate USD 200-300 mn revenues at its peak sales. Rampu-p in Non US markets such Europe, emerging markets and India business will help to sustain the margins. The company is developing some of the new molecules such as tildrakizumab and Seciera which are currently under Phase III clinical trials. These molecules have better efficacy than the drugs available in the market. Launch of the drugs post FY19 will give a boost to the topline. Going ahead, we believe the topline to deliver a Y-o-Y grow by 5.7 % with sales at INR 311,089 mn in FY19 and EBITDA at INR 87,066 with margins at 28.1% At CMP of INR 450 the stock is trading at PE of 23.4x at FY17 with EPS of INR 23.5 and FY19 EPS of 22.1 We recommend BUY rating on the stock and value the stock at 25x FY19E EPS of INR 24.9 with a target price of INR 550 indicating 22.1% upside from CMP. 3
Q1FY18 Result Snapshot 4 Exhibit 1: Consolidated Result Update (INR Mn) INR Mn Q1FY18 Q4FY17 Q1FY17 QoQ (%) YoY (%) Net Sales 34323 34870 34998-1.6-1.9 Other operating income 927 950 939-2.3-1.2 Total Income 35251 35820 35937-1.6-1.9 Expenditure 28786 30758 29828-6.4-3.5 Materials Consumed 11767 13155 13705-10.6-14.1 Employee Cost 6729 6389 6866 5.3-2.0 Other Exp 10290 11214 9257-8.2 11.2 EBITDA 6465 5062 6110 27.7 5.8 EBITDA margin (%) 18% 14% 17% 421bps 134bps Depreciation 2134 6322 1608-66.2 32.7 EBIT 4330-1260 4502-443.8-3.8 Other Income 1514 228 252 564.2 500.7 Interest expenses 279 334 313-16.6-11.1 Excep. Items 0 0 0 PBT 5566-1366 4440-507.5 25.3 Tax 1415-757 708-286.9 99.8 Effective tax rate (%) 25.4 55.4 15.9-54.1 PAT 4151-609 3732-782.0 11.2 Share of Associates 0-10 59 Reported PAT 4151-619 3791-771.0 9.5 Adj PAT 4151-619 3791-771.0 9.5 Net Margin (%) 12% -2% 11% 1350bps 123bps AEPS 5.1-0.8 4.9-758.5 2.7 Source: Company, Key Con-call Highlights: The company believes that due to intense price erosion in the US the synergy benefits has lost. The in the quarter the material cost and has been increased due to higher material cost in its US subsidiary Taro Pharma. Other expenses has also seen a spurt due to higher investment in speciality along with some forex loss which was registered under other expenses. In the quarter there has been significant increase in other income at INR 1,520 mn was due milestone payment from Almirall for Tildrakizumab. During the quarter the US sales were hurt due to delay in approval from Halol plant and supplies were affected due to remediation activities for the same. The company is gradually filing for Tildrakizumab in emerging markets. the emerging markets and continue to file for the drug Seciera in the The company plans to ramp up its in lincensed drugs such as Odomzo and and Restasis which has an estimated market size of USD 150-200 mn globally. The company continues to spend on R&D at 8.5% to sales and no cut will be made on that. Sunpharma has recorded lower sales but the cost has not gone down proportionately leading to low profitability. The company s Halol units had 9 observations as no new approvals have been received from this facility. The company plans to shift the products from Halol to an alternative site to ramp up its product filings and launches.
Key Financials Exhibit 2: Income Statement INR Mn FY15 FY16 FY17 FY18E FY19E Net Sales 272,451 276,400 302,643 293,515 310,268 Operating Expenses 194,426 197,583 214,892 222,582 223,201 Operating Profit 78,025 78,817 87,751 70,933 87,066 Other Operating Income 1,469 5,256 0 0 0 EBITDA 79,494 84,073 87,751 70,933 87,066 Depreciation 11,947 10,135 12,648 12,047 14,192 Other Income 4,508 4,592 6,232 7,515 7,915 EBIT 72,055 78,530 81,335 66,402 80,790 Interest Paid 5,790 4,769 3,998 4,888 5,291 Pre-Tax Profit 66,266 73,761 77,337 61,514 75,499 Non-Recurring Items 2,378 6,852 0 0 0 Pre-Tax Profit 63,888 66,909 77,337 61,514 75,499 Tax (current + deferred) 9,147 9,349 12,116 8,612 10,570 Net Profit 54,741 57,560 65,222 52,902 64,929 Adjusted Pet Profit 47,630 53,267 56,502 41,001 53,029 Minority Interests (9,488) (11,145) (8,719) (11,901) (11,901) Net Income 45,253 46,415 56,502 41,001 53,029 Source: Company, 5 Exhibit 3 : Balance Sheet INR Mn FY15 FY16 FY17 FY18E FY19E Equity Share Capital 2,071 2,407 2,399 2,399 2,399 Reserves & Surplus 254,310 327,418 363,997 400,788 449,606 Total Shareholders Fund 256,381 329,824 366,397 403,187 452,005 Minority Interest 28,512 40,853 37,909 37,909 37,909 Non- current liabilities Long Term Borrowings 13,684 31,103 14,361 14,361 14,361 Deferred Tax Liabilities 753 1,028 3,148 3,148 3,148 Current Liabilities Short-term Borrowings 64,143 54,158 67,856 74,511 81,832 Trade Payables 32,865 35,829 43,954 49,746 48,068 Other Current Liabilities & Provisions 91,647 62,508 80,478 90,660 92,198 Total Liabilities 487,985 555,303 614,102 673,521 729,520 Non- current Assets Fixed Assets 147,211 124,130 149,403 201,957 213,957 Goodwill 56,347 55,362 55,362 55,362 Other Non-Current Assets 18,270 0 0 0 0 Current assets Current Investments 27,163 75,413 79,800 86,819 94,540 Trade Receivables 51,061 67,757 72,026 73,982 76,504 Inventories 56,680 64,226 68,328 78,172 79,307 Cash & Bank Balances 109,980 138,954 153,717 141,042 169,897 Short Term Loans & Advances 77,620 28,476 35,465 36,187 39,952 Total Assets 487,985 555,303 614,102 679,829 739,562 Source: Company,
. Exhibit 4: Cash flow statement 6 INR Mn FY15 FY16 FY17A FY18E FY19E PAT 45,394 46,415 56,502 41,001 53,029 Depreciation 11,947 10,135 12,648 12,047 14,192 Change in Working Capital (44,095) (13,135) 21,336 (5,033) (7,563) Non -cash items 0 0 0 0 0 Cash flow from operations 13,246 43,415 90,486 48,015 59,657 Capital Expenditure 63,906 43,004 17,021 9,238 1,200 Change in Investments (697) 48,250 4,388 7,019 7,721 Other Investing Activities 0 0 0 0 0 Cash flow from investing 63,209 91,253 21,409 16,257 8,921 Free Cash Flow (49,963) (47,838) 69,077 31,758 50,736 Equity raised/(repaid) 52,845 7,434 (3,044) 6,655 7,320 Debt Raised/(repaid) (0) (7,138) 4,822 0 0 Dividend (incl. tax) (6,012) (10,486) 0 0 (4,211) Others 37,210 10,909 0 0 0 Cash flow from financing 84,042 720 1,778 6,655 3,110 Opening Cash Balance 75,902 109,980 131,816 151,408 189,821 Closing Cash Balance 109,980 62,862 202,671 189,821 243,667 Source: Company, Exhibit 5: Ratio Analysis INR Mn FY15 FY16 FY17A FY18E FY19E EPS 18.8 19.3 23.5 17.1 22.1 CEPS 24.8 26.3 28.8 22.1 28.0 BVPS 118.4 154.0 168.5 183.8 204.2 DPS 1.3 1.5 1.5 1.5 1.5 Payout (%) Valuation (x) 22.7 20.3 19.1 26.3 20.4 P/E 3.8 2.9 2.7 2.4 2.2 P/BV 12.8 11.3 10.6 12.5 9.6 EV/EBITDA 2.8 2.1 1.9 1.7 1.4 Dividend Yield (%) 0.3 1.7 3.0 n/a 0.7 Return ratio (%) EBIDTA Margin 29.0 29.8 29.0 24.2 28.1 PAT Margin 22.7 24.4 22.7 19.5 22.4 ROAE 19.5 16.3 14.6 9.7 11.4 ROACE 24.2 19.1 17.2 13.0 14.4 Leverage Ratios (x) Long Term D/E 27.3 23.0 20.3 20.1 19.6 Net Debt/Equity (20.8) (34.8) (37.4) (43.1) (49.9) Debt/EBITDA 1.0 1.0 0.9 1.3 1.1 Interest Coverage 12.4 16.5 20.3 13.6 15.3 Current ratio 2.1 3.2 2.7 2.8 3.3 Growth Ratios (%) Income growth 70.2 1.4 9.5 (3.0) 5.7 EBITDA growth 11.7 5.8 4.4 (19.2) 22.7 PAT growth (18.6) 11.8 6.1 (27.4) 29.3 Turnover Ratios F.A Turnover x 0.7 0.6 0.5 0.4 0.4 Inventory Days 0.2 0.2 0.2 0.2 0.2 Debtors Days 76 85 82 97 93 Source: Company,
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