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Sun Pharmaceuticals Q2FY18: Domestic business sees partial recovery; Reduce

Equirus Securities | 20 Nov, 2017  | Follow Author | Add to my Favourites 
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Sun Pharma’s (SUNP) 2QFY18 sales were in line with EE, while EBITDA and earnings came 10%/48% ahead of EE largely owing to lower R&D and other expenses. US sales declined ~US$ 40mn sequentially due to some deferred sales and price erosion. With deferred sales coming back in the subsequent quarter, launch of high-value gCoregcr in the US, and continued recovery in the domestic business, we expect 2HFY18 to be better than 1HFY18. We largely keep our estimates unchanged and reiterate REDUCE on the stock with a Dec’18 TP of Rs 517 set at 25x P/E, valuing the Tildrakizumab opportunity at Rs 25/share.

De-risking at Halol continues; few niche opportunities still in pipeline: The Halol facility status following a USFDA re-inspection in Dec’16 was updated to OAI, and indicated towards the requirement of another re-inspection. Management stated that it has already invited USFDA and is waiting for a re-inspection. As per management, there are a few niche products stuck owing to the facility, which would get approval on clearance. SUNP is transferring some products to other alternate plants (incl. Baska Injectable plant) to expedite the approval. We expect Halol re-inspection in 2HFY18, and thereafter clearance in 1QFY19.

US business impacted by deferred sales; recovery likely: US business reported revenues of US$ 309mn (US$ 351mn in 1QFY18). Taro confiscated the US erosion with flat revenues sequentially; however, SUNP’s core US revenues dropped on account of deferred sales (which should resurge from 3QFY18) and a steep decline in gDoxil and gGleevec prices. With the gCoregcr launch and anticipated approval of gVenofer, we expect US revenues to grow from current levels. We expect US business to contribute US$ 1.45bn in FY18E vs. US$ 2bn in FY17.

Domestic biz sees partial recovery:
Domestic business grew 11% yoy and SUNP launched 14 products during the quarter. The company indicated that it has seen partial recovery of channel stocking post GST; it expects further recovery from current levels, though a revival to earlier levels (40 days) seems difficult. Management remained confident on domestic business growth, and expects a gradual recovery here.

Guidance points to near-term pressures:
Management maintained its guidance of a single-digit drop in topline and 2HFY18E EBITDA margins of 20-22%
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Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor accept any liability whatsoever arising from the use of any of the above contents.


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