Sun Pharma: Yet another robust quarter for Taro
- Robust 2QCY2012: Taro’s 2QCY2012 results continued to surprise positively yet again with 42.6% y-o-y top-line growth at $159.2mn (against estimate of $139mn), driven by price increase in select products and low base. Efficient cost control measures led the EBITDA margins to surge to 49.6% (up 400bp q-o-q and 1900bp y-o-y). Falling in-line with the strong operational performance, the Net Profit grew 76.2% y-o-y at $62.9mn.
- Investments start to pep new growth prospects: Taro reported an investment of $68mn in this quarter indicating efforts to pep up the matured portfolio. Taro currently has an ANDA portfolio comprising 15 products and 2 NDAs awaiting approval. Besides, it has also accelerated its R&D spend (up 17% q-o-q) in order to bridge the product portfolio gaps.
- Performance sustenance remains a key growth prospect: Taro has been reporting strong numbers since the past four quarters (largely non-recurring in nature) through price hikes in its select products. Besides, a healthy sequential performance indicates that there is still some steam left in the existing product portfolio. However, the criticality of margin sustenance from the current ANDA pipeline despite pricing pressure would be a key monitorable.
Outlook and Valuation: Taro’s 2QCY2012 results were above expectations, largely driven by value growth (flat in volume growth). Notably, while the price increase contributed the bulk of margin expansion, the base business has also remained stable.
Reliance Securities' remain positive on Sun Pharma, given its steady performance, superior brand franchise in the domestic market, growth prospects in the market and an excellent M&A track record. Sun is currently trading at 27.1x and 22.8x its FY2013E and FY2014E EPS respectively. Maintain Neutral
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Reliance Securities comes from the house of Reliance Capital, one of India’s leading & prominent financial houses. Founded in 1986, Reliance Capital has come a long way from being into steady annuity yielding businesses such as leasing, bill discounting, and inter-corporate deposits to diversifying its activities in the areas of asset management and mutual fund; life and general insurance; consumer finance and industrial finance; stock broking; depository services; private equity and proprietary investments; exchanges, asset reconstruction; distribution of financial products and other activities in financial services.
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