Sun Pharma Reports Q1 Loss Of Rs 1276 Crore

Pharma major Sun Pharma has reported a net loss of Rs 1276 crore for the quarter ended June 30, 2013. However, though numbers look weak, they should not be taken at face value. The underlying reason for this is an exceptional item of Rs 2517 crore on account of settlement provision for the generic version of Protonix, which has led to a loss in the quarter.

The adjusted profit for the period comes in at Rs 1241 crore, making for a year-on-year growth of 56%. The topline of the company grew by 31% to Rs 3482 crore. This is the second consecutive quarter in which the company has reported quarterly sales of over Rs 3000 crore.

The strong surge in the topline was owing to the rise in domestic formulations, which grew by 44% on a yearly basis to Rs 849 crore. The company has said that the higher sales were due to the one-time sales recorded earlier in the March quarter. The adjusted sales in the domestic markets are up by 11%.

Sun Pharma’s US formulations business also reported fantastic growth, up by 28% on a year-on-year basis, led by the acquisition of URL and Dusa. The sales of its other subsidiary Taro, on the other hand, declined by 4%, but after adjusting for the one-time impact, the sales are up by 10%. Its sales in the other markets were also higher by 19%, while those in the API segment were down 4%. Overall, the numbers are ahead of the anlaysts’ estimates, lead by acquisitions and the stronger domestic formulations business.

The company’s EBITDA margins have logged a decline of 218 basis points during the quarter. On a sequential basis, however, the margins improved by 302 basis points to come in at 44.55%, the highest in the last four quarters.  While the cost of materials has gone up by just 1.7%, employee cost and other expenditure grew significantly on a year-on-year basis, which caused the decline in the margins.

Sun Pharma made a provision of Rs 2517 crore in this quarter on account of the settlement fee mentioned earlier. It had already provided Rs 584 crore in the second quarter of the last fiscal, taking the total provision to Rs 3101 crore.

During the period, it filed ANDAs for 4 products and received 9 approvals. Cumulatively, it has 453 ANDAs filed with the USFDA and has 320 ANDAs approved. It also has total 133 ANDAs awaiting USFDA approval. In addition, the company has said that the total number of patent applications submitted now stands at 791, with 503 patents granted so far.

Overall, we remain bullish on the stock, considering the fantastic growth in the topline and the adjusted bottomline. The adjusted TTM EPS of the company stands at Rs 19.50, showing 12% sequential growth. We expect the full FY14 EPS to be around Rs 26-27. The stock at the CMP of Rs 541 is trading at a forward price-to-earnings ratio of 20x. We believe that one can invest in this stock with a one year price target of Rs 660.