Sun Pharmaceutical Industries: Recommendation Review

Pharma stocks are adding significant value for shareholders due to the increased demand for generic products. With this in mind, we had recommended Sun Pharmaceutical Industries (DSIJ Vol. 28, Issue # 7, dated March 24, 2013) when it was trading at a price of Rs 799. Those who had invested in the stock have garnered fantastic returns of 18 per cent in 36 trading sessions, outperforming the broader market.

With a market cap of Rs 98000 crore, Sun Pharma is the largest company in its domain on the bourses. It enjoys 45 per cent EBITDA margins, which are also one of the highest in the pharma sector. The company generates 36 per cent of its total revenues from the domestic market, where it has a leadership position in many therapeutic segments. In terms of revenues, Sun Pharma is the largest company in the domestic pharma market, with a total of five per cent of the market share.

US generics are the largest revenue drivers for the company and have shown fantastic growth over the last five years. The company has been acquiring a few companies, which has helped it to quickly increase its revenues from the US markets. Recently, it has acquired two companies in the US market – URL Pharma and Dusa Pharma. Both these companies have a strong product pipeline, which we believe will help the company generate higher revenues in the future.

However, at a price of Rs 942, Sun Pharma is trading at a TTM P/E of 34.4x, which we believe is expensive and not sustainable over the long term. We advise investors to book profits in the stock and revisit the counter when the valuations cool down a bit.