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1
CMP
`782
TP (12 months)
`823
ACTION Hold
Sun Pharma is India’s top drug maker and world's fifth largest specialty generic pharmaceutical company by revenue. It has a broad-based portfolio of more than 2,000 products. The company has a global presence in over 150 countries across branded and generic segments. Moreover, it owns 47 manufacturing facilities spread across 6 continents. It is backed by strong R&D capabilities across dosage forms like injectables, sprays, ointments, creams, liquids, tablets and capsules.
INVESTMENT RATIONALE
gGleevec and strong pipeline to drive the US business growth: The US
product basket remains robust with 417 approved ANDAs approved while 150 are pending for approval (including 15 tentative approvals). With the launch of generic Gleevec (USD 2.5bn market size & entitled to 180-days exclusivity) on 1 Feb 2016, the company is aiming to garner more than 30% market share during exclusivity. We expect it to contribute anywhere between 10-15% to total revenues in FY17E. Further, Taro (US Subsidiary) has launched Keveyis in Sep-15 (Keveyis is the first medicine approved by the FDA for the treatment of primary periodic paralysis) in the US and expects to generate revenues of about USD 100 mn over FY16-18E. We expect US business to grow at a CAGR of 8.4% during FY16-18E. Moreover, increased supplies from Halol facility would boost the sales momentum once FDA issues are addressed.
Domestic growth to improve steadily during FY16-18E: Sun Pharma
continues to enjoy top position based on doctors’ Rx in seven therapeutic areas, namely psychiatrists, neurologists, cardiologists, ophthalmologists, orthopaedics, nephrologists and gastroenterologists. In the domestic space, Ranbaxy acquisition has provided more therapeutic diversification to Sun’s portfolio along with significant improvement in market share from 5.5% to 8.8% (with a leadership in 12 therapies). In March 2016, Sun Pharma and AstraZeneca Pharma India Limited (AZPIL) entered into a partnership for the distribution of dapagliflozin, an innovative Type 2 diabetes medicine in India. This agreement for dapagliflozin further strengthens Sun Pharma’s partnership with AstraZeneca and bolsters its diabetes portfolio. We expect domestic business to grow at a CAGR of 13.5% during FY16-18E.
Halol facility re-inspection: The company has implemented remediation
measures at Halol and requested for re-inspection. The company is also witnessing resumption of supplies from Halol, which got affected due to remediation measures. We believe that the company has filed key ANDAs from Halol, therefore it could receive multiple ANDA approvals once FDA issues are resolved and this could drive a significant recovery in the US business.
Valuation: We expect revenues and PAT to grow at a CAGR of 12% and
21.1% respectively over FY16-18E. Further, EBITDA margins are expected to improve by 490 bps to 33.6%. We expect growth to be driven by gGleevec and gGlumetza launch, synergies from Ranbaxy integration (USD 300 mn by FY18E), scale-up of specialty products and key launches in the US. Hence, we initiate Sun Pharma with a HOLD rating with a TP of Rs. 823 at 25x FY18E earnings.
Equity | India 6th Sep 2016
Eureka Stock & Share Broking Services Ltd. www.eurekasec.com
Sun Pharmaceuticals Industries Ltd.
Equity Research Report
EuValue
Potential Upside (%) 5
Duration * Long Term
52 week H/L (Rs.) 934/706
Decline from 52WH (%) 16.2
Rise from 52WL (%) 10.7
Beta (x) 0.3
Mkt. Cap (Rs.Cr) 188,220
Book Value per share (Rs.) 130.5
*Duration: Long term (1year), Medium term (6 months) & Short term (3 months)
BSE CODE: 524715 NSE CODE: SUNPHARMA REUTERS CODE: SUN.NS BLOOMBERG CODE: SUNP:IN
SECTOR: Pharmaceuticals NPM (FY16): 19.5% O/S SHARES: 240.7 Crores AVG. DAILY VOLUME: 37.4 Lacs
FINANCIAL SNAPSHOT
SHAREHOLDING PATTERN (%)
1–YR PRICE PERFORMANCE
0
50
100
150
Sep
-15
Oct
-15
No
v-1
5
Dec
-15
Jan
-16
Feb
-16
Mar
-16
Ap
r-1
6
May
-16
Jun
-16
Jul-
16
Au
g-1
6
Sep
-16
SUNPHARMA NIFTY
Promoters (%), 55.0
Public (%), 45.0
Others (%), -
As on 30th Jun’16
Y/E FY15 FY16 FY17E FY18E
Revenue (Rs.Cr) 27,433 27,744 30,980 34,791
Adj. Profit (Rs.Cr) 4,777 5,401 6,267 7,919
Adj. EPS (Rs.) 19.9 22.4 26.0 32.9
P/E (x) 38.0 34.8 30.0 23.8
P/BV (x) 7.1 6.0 5.1 4.3
ROE (%) 19.5 16.9 16.2 17.1
EuValue | SUNPHARMA
6th Sep 2016
.
2
Sun Pharmaceuticals Industries Ltd: Company Overview
Sun Pharma is world's fifth largest specialty generic and India's top
pharmaceutical company with global presence supported by 47 manufacturing
facilities spread across 6 continents. The company has expanded both
organically and through acquisitions (Caraco, Taro, Dusa, Ranbaxy). In India,
Sun Pharma enjoys leadership across 12 different classes of doctors with 30
brands featuring amongst top 300 pharmaceutical brands. In Indian
formulations, the company is a leader in niche therapy areas of psychiatry,
gastroenterology, neurology, cardiology, nephrology, orthopaedics and
ophthalmology. It covers more than 100 markets in emerging countries and six
markets in Western Europe.
Geography wise revenue breakup (FY16) Business break-up (FY16)
Source: Company, In-house research
Domestic business to grow steadily at CAGR of 13.5% over FY16-18E
Indian formulations contributed 26% to overall revenues with a leading position
of 8.8% market share. Indian formulation growth was unaffected despite NLEM
2011 implementation (price control list are just 9% of Indian formulations). Sun
pharma continues to enjoy top position based on doctors’ Rx in seven
therapeutic areas, namely psychiatrists, neurologists, cardiologists,
ophthalmologists, orthopaedics, nephrologists and gastroenterologists. Top 10
brands contribute 17% of India revenues and growth driven by a basket of
brands. In the domestic space, Ranbaxy acquisition has provided more
therapeutic diversification to Sun’s portfolio along with significant improvement
in market share from 5.5% to 8.8% (with a leadership in 12 therapies). In March
2016, Sun Pharma and AstraZeneca Pharma India Limited (AZPIL) entered into
a partnership for the distribution of dapagliflozin, an innovative Type 2 diabetes
medicine in India. Under the agreement, Sun Pharma will promote and
distribute dapagliflozin under the brand name ‘Oxra’. Sun Pharma will also gain
the rights to promote and distribute the combination of dapagliflozin with
metformin under the brand name ‘Oxrame’, following regulatory approval. This
agreement for dapagliflozin further strengthens Sun Pharma’s partnership with
AstraZeneca and bolsters its diabetes portfolio. We expect domestic business
to grow at a CAGR of 13.5% during FY16-18E.
Domestic business to grow at a CAGR of 13.5% during FY16-18E
Source: Company, In-house research
US 48%
India26%
RoW21%
APIs 5%
Formulations
95%
APIs5%
2966 3692 6717 7254 8124 93431.7% 24.5%
81.9%
8.0% 12.0% 15.0%
0%
50%
100%
0
5000
10000
FY13 FY14 FY15 FY16 FY17E FY18E
Rs.
Cro
res
Domestic business YoY growth
Sun Pharma enjoys leadership across 12 different classes of doctors with 30 brands featuring amongst top 300 pharmaceutical brands.
Ranbaxy’s acquisition has provided more therapeutic diversification to Sun’s portfolio along with significant improvement in market share from 5.5% to 8.8% (with a leadership in 12 therapies).
EuValue | SUNPHARMA
6th Sep 2016 .
3
Domestic business Therapeutic Revenue Break-up (FY16)
Source: Company, In-house research
Domestic business Market share (FY16)
Source: Company, In-house research
Domestic therapy ranking improved by Ranbaxy consolidation
The acquisition of Ranbaxy has created the world’s fifth-biggest generic
pharmaceutical company by revenue. Four out of five US centric facilities remain
under USFDA scanner and we expect the company to resolve the issues
gradually over next 2years. In the domestic space acquisition has provided
diversification to Sun’s portfolio by improving ranking in Diabetologists 1(earlier
2), Consulting Physicians 1(earlier 5), Dermatologists 1(earlier 6), Urologists
1(earlier 6), Oncologists 1(earlier 8), Chest Physicians 2 (earlier 5). The
acquisition is expected to bring benefits of synergies about USD 300 mn by
FY18E with huge benefits accruing from procurement efficiencies, cost reduction,
scale up in revenue and productivity improvement. Moreover, Ranbaxy’s (50% of
Ranbaxy’s revenue comes from Ems) strong foothold in emerging markets
provides the company a ready platform to cross-sell its products and exploit its
marketing infrastructure.
Neuro-Psychiatry 17%
Cardiology 18%
Anti-Infective 12%Gastroenterology
12%
Diabetology 9%
Pain / Analgesics 7%
Vitamins /Minerals4%
Gynaecology 4%Dermatology 5%
Respiratory 4%Opthalmology 2% Others 6%
Emcure+Zuventus-2.6%
Intas-2.8%
Macleods-2.9%
Glaxo-3.3%
Lupin-3.5%
Alkem + Cachet + Indchemie-3.5%
Mankind-3.6%
Zydus + Biochem-4.2%
Cipla-4.9%
Abbott-6.2%
Sun Pharma-8.8%
EuValue | SUNPHARMA
6th Sep 2016 .
4
US launches to drive the exports revenue growth
Sun Pharma, derives 48% of its revenues from the US markets. It is the largest
generic dermatology company and the 3rd largest branded dermatology company in
the US. The company’s key focus areas include dermatology, oncology, controlled
substances and ophthalmics, among others. The company has significant
presence in generics, branded and OTC segments, with integrated manufacturing
facilities. It has the flexibility to manufacture both onshore and offshore products.
With the launch of generic Gleevec (USD 2.5bn market size & entitled to 180-days
exclusivity) on 1 Feb 2016, the company is aiming to garner more than 30% market
share. We expect it to contribute anywhere between 10-15% to total revenues in
FY17E. Further, Taro (US Subsidiary) has launched Keveyis in Sep-15 (Keveyis is
the first medicine approved by the FDA for the treatment of primary periodic
paralysis) in the US and expects to generate revenues of about USD 100 mn over
FY16-18E.
Taro accounted for 47% of US revenues with 65% EBITDA margins in FY16.
Currently, it has 35 ANDAs are pending for approval and benefits of which will flow
in from FY17E. In FY15, Taro sharply increased R&D investments and the effort
has begun to reflect in higher number of ANDA filings (filed 12 ANDAs in FY15 as
against 2-3 annual filings earlier). Further, the quality of filings is significantly
superior when compare to the existing portfolio. Currently, the US product basket
remains robust with 413 approved ANDAs and 156 are pending for approval
(including 10 tentative approvals).
We expect US business to grow at a CAGR of 8.4% during FY16-18E on account
of steady gGleevec revenues post exclusivity, gGlumetza launch, incremental
revenues from Keveyis, key launches (including para IV) and increased supplies
from Halol facility once FDA issues are addressed.
Halol facility remediation
Halol facility, which was impacted by cGMP deviations in FY15, underwent very
significant remediation efforts in FY16. These efforts are likely to culminate in to a
request for re-inspection which we are likely to put in with the US FDA in 2016.
This remediation process has temporarily impacted supplies and product approvals
from this facility. The company is also witnessing resumption of supplies from
Halol, which got affected due to remediation measures. We believe that the
company has filed key ANDAs from Halol, therefore it could receive multiple ANDA
approvals once FDA issues are resolved and this could drive a significant recovery
in the US business.
Revenue to grow at CAGR of 8.4% during FY16-18E
Source: Company, In-house research
6,1549,784
13,720 13,250 14,787 15,560
77.3%59.0%
40.2%
-3.4%11.6%
5.2%
-50%
0%
50%
100%
0
10000
20000
FY13 FY14 FY15 FY16 FY17E FY18E
Rs.
Cro
res
US Business YoY growth
With the launch of generic Gleevec (USD 2.5bn market size & entitled to 180-days exclusivity) on 1 Feb 2016, the company is aiming to garner more than 30% market share.
EuValue | SUNPHARMA
6th Sep 2016 .
5
ANDAs pipeline
Source: Company, In-house research
Enhancing specialty segment presence through strengthening its injectable
capabilities in the US
Specialty pharma business is growing at almost double the pace of generics
business in the US and companies with focus on specialty business will continue to
deliver strong revenue growth. Sun Pharma has embarked on increasing share of
complex generics, specialty products in its global product portfolio and is aiming to
establish strong presence by taking some of initiatives such as In-licensing early-
to-late stage clinical candidates, as well as getting access to on-market patented
products. Dermatology and Ophthalmic are the key segments targeted through
these initiatives besides a few other segments. The company is among the leading
branded companies in the US dermatology segment driven by innovative products
like Absorica, Kerastick and the Topicort range of products.
In May 2016, company announced positive results from the Phase-3 trials of
Tildrakizumab to treat chronic plaque psoriasis. Post the completion of these
Phase-3 trials; it has commenced steps towards filing the Biologics License
Application (BLA) for this product with the US FDA. Persistently working for
patients across the world and targeting to increase the share of complex generics
and specialty products to overall business in the coming years. This objective will
be driven by a combination of efforts coupled with inorganic initiatives as well as
external partnerships. The company’s specialty strategy coupled with the benefits
from the Ranbaxy merger and the targeted productivity improvements should
favorably impact profitability in the long-term.
ANDA Approvals by Therapeutic Area
Source: Company, In-house research
207
377 397 449 478597 567
84225 250 311 344
438 417
0
200
400
600
800
FY10 FY11 FY12 FY13 FY14 FY15 Q1FY17
Filed Approved
100 97
62
43 12 2921
12 1126
0
20
40
60
80
100
120
EuValue | SUNPHARMA
6th Sep 2016 .
6
ROW to grow steadily at a CAGR of 8.7% over FY16-18E
In FY16, ROW contributed 21% to overall revenues with strong presence in key
markets including emerging markets (Mexico, Brazil, Russia & CIS, South Africa),
Western Europe, Canada, Australia, New Zealand among others. Moreover,
Ranbaxy’s stronghold in emerging markets will complement company’s presence
and enable cross-selling of products. The company now has 10 manufacturing
facilities across emerging markets. In Western Europe and other markets,
company operates through distribution led model. Currently, the company is
expanding its product basket across injectables, hospital products and retail
market. In the near term, company is planning to develop and commercialize
complex generics and differentiated products to drive sustainable and profitable
growth. We expect the company to post steady growth at a CAGR of 8.7% over
FY16-18E.
ROW to grow at CAGR of 8.7% over FY16-18E
Source: Company, In-house research
APIs: Recently acquired Opiates business to complement the current
portfolio
APIs accounted for 5% of overall revenues and grew at 38% in FY16 on account of
consolidation of the opiates business in Australia. Sun Pharma manufactures over
300 APIs across 12 locations. Around 25 APIs are added to the product portfolio
annually and clientele include large generic and innovator companies. In 2015, the
company acquired GSK Opiates business in Australia. The product portfolio
consists of poppy-derived raw materials that are primarily used to manufacture
analgesics (used for the treatment of moderate to severe pain) will complement
company’s current API manufacturing footprint globally. The global Opiates market
holds good potential and the addition of GSK’s Opiates will strengthen the
company’s positioning further.
APIs revenue growth R&D spending trend
Source: Company, In-house research
1527 2786 6065 5746 6105 6792
37.3%
82.5%117.7%
-5.3% 6.2% 11.3%
-50%
0%
50%
100%
150%
0
2000
4000
6000
8000
FY13 FY14 FY15 FY16 FY17E FY18E
Rs.
Cro
res
RoW YoY growth
31.3%37.8%
15.0% 15.0%
0%
10%
20%
30%
40%
0
500
1000
1500
2000
2500
FY15 FY16 FY17E FY18E
Rs.
Cro
res
APIs YoY growth
6.3% 6.5%7.2%
8.3%
0%
2%
4%
6%
8%
10%
0
500
1000
1500
2000
2500
FY13 FY14 FY15 FY16
Rs.
Cro
res
R&D Exp as % of sales
Ranbaxy’s stronghold in emerging markets will complement company’s presence and enable cross-selling of products.
. The product portfolio GSK Opiates will complement company’s current API
manufacturing footprint globally.
EuValue | SUNPHARMA
6th Sep 2016 .
7
Revenue to grow at CAGR of 12% with EBITDA margin expansion of 390bps We expect Sun pharma’s revenue to grow at a CAGR of 12% driven by recent gGleevec launch, gGlumetza launch in next few weeks, synergies from Ranbaxy integration (USD 300 mn by FY18E), scale-up of specialty products and key launches in the US. Hence, we expect 390bps improvement in EBITDA margin over FY16-18E led by high margin launches & cost efficiencies due to Ranbaxy integration.
Revenue to grow at a CAGR of 12% during FY16-18E
Source: Company, In-house research
EBITDA & PAT margin to improve by 490bps and 330bps respectively
Source: Company, In-house research
Return ratios We expect Sun pharma’s return ratios to improve further on account of contribution of high margin launches, revenue synergies and productivity improvement on Ranbaxy’s consolidation.
Return ratios
Source: Company, In-house research
40.9% 42.3%
70.6%
1.1%11.7% 12.3%
-20%
0%
20%
40%
60%
80%
0
10000
20000
30000
40000
FY13 FY14 FY15 FY16E FY17E FY18E
Total revenue YoY growth
43.3% 43.5%
28.7% 28.7% 31.5% 33.6%
31.6% 35.2%
17.4% 19.5% 20.2% 22.8%0%
20%
40%
60%
0
5000
10000
15000
FY13 FY14 FY15 FY16E FY17E FY18E
EBITDA PAT EBITDA margin PAT margin
32.3% 35.8%
23.9%19.9% 19.9% 21.6%
23.8%30.5%
19.5% 17.4% 16.2% 17.1%0%
20%
40%
FY13 FY14 FY15 FY16 FY17E FY18E
ROCE ROE
EuValue | SUNPHARMA
6th Sep 2016 .
8
Y/E FY15 FY16 FY17E FY18E
Growth (%)
Net Sales 70.6 1.1 11.7 12.3
EBITDA 12.4 1.1 22.6 19.8
Net profit (15.6) 13.1 16.0 26.4
Margin (%)
EBITDA 28.7 28.7 31.5 33.6
EBIT 26.3 28.6 29.7 32.1
NPM 17.4 19.5 20.2 22.8
Return Ratios (%)
RoE 19.5 16.9 16.2 17.1
RoCE 23.9 19.5 19.9 21.6
Per share data (Rs.)
EPS 19.9 22.4 26.0 32.9
DPS 3.0 1.0 3.0 3.0
BVPS 106.6 130.5 152.9 182.2
Valuation(x)
P/E 38.0 34.8 30.0 23.8
EV/EBITDA 23.2 23.5 18.7 15.1
EV/Net Sales 6.7 6.7 5.9 5.1
P/B 7.1 6.0 5.1 4.3
Turnover Ratios (x)
Net Sales/GFA 2.1 1.5 1.5 1.5
Sales/Total Assets 0.7 0.5 0.5 0.6
Y/E (Crores) FY15 FY16 FY17E FY18E
Pre-tax profit 6,403 7,450 8,813 10,900
Depreciation 1,195 1,014 1,240 1,322
Chg in Working Capital
(39) (1,941) (935) (1,090)
Others (496) (508) (300) (540)
Tax paid (1,740) (935) (1,322) (1,635)
Cash flow from operating activities
5,322 5,080 7,496 8,958
Capital expenditure
(2,366) (3,354) (1,500) (1,600)
Chg in investments (305) 2,392 680 800
Cash flow from investing activities
(2,671) (962) (820) (800)
Equity raised/(repaid)
- - - -
Debt raised/(repaid)
(548) (656) (2,000) (2,000)
Dividend paid (363) (291) (866) (866)
Other financing activities
(176) (477) (380) (260)
Cash flow from financing activities
(1,087) (1,424) (3,247) (3,127)
Net chg in cash 1,563 2,695 3,429 5,031
Y/E (Crores) FY15 FY16 FY17E FY18E
Share Capital 241 241 241 241
Reserve and surplus
25,397 31,164 36,565 43,617
Net Worth 25,638 31,405 36,805 43,858
Minority Interest 2,851 4,085 5,309 6,655
Total debt 8,994 8,338 6,338 4,338
Other non-current liabilities
2,719 2,303 2,419 2,540
Total Equity & Liabilities
40,202 46,132 50,871 57,391
Fixed Assets 11,020 13,361 13,621 13,898
Goodwill 3,701 4,181 4,181 4,181
Investments 2,716 1,309 1,309 1,309
Net Current assets
18,277 22,123 26,451 32,533
Other non-current assets
4,487 5,158 5,310 5,469
Total Assets 40,202 46,132 50,871 57,391
BALANCE SHEET (CONSOLIDATED)
Y/E (Crores)s. FY15 FY16 FY17E FY18E Total operating income
27,433 27,744 30,980 34,791
Raw Material cost 6,739 6,483 6,687 7,336
Employee cost 4,430 4,797 5,267 5,671
Other operating expenses
8,398 8,508 9,274 10,101
EBITDA 7,867 7,956 9,753 11,683
Depreciation 1,195 1,014 1,240 1,322
EBIT 6,672 6,942 8,513 10,360
Other Income 548 985 680 800
Net Interest cost 579 477 380 260 Profit Before Tax
6,641 7,450 8,813 10,900
Tax 915 935 1,322 1,635
Profit after tax 5,726 6,515 7,491 9,265
Minority Interest 936 1,113 1,224 1,346
P/L from Associates
(13) (2) - -
Adjusted PAT 4,777 5,401 6,267 7,919
E/o income / (Expense)
238 685 - -
Reported Profit 4,539 4,716 6,267 7,919
QUICK GLANCE-FINANCIALS AND VALUATIONS
PROFIT AND LOSS ACCOUNT (CONSOLIDATED)
RATIO ANALYSIS (CONSOLIDATED)
CASH FLOW STATEMENT (CONSOLIDATED)
EuValue | SUNPHARMA
6th Sep 2016 .
9
Disclaimer: This report has been prepared by Dion Global Solutions Limited (Dion) and is meant for sole use by the recipient. For detailed disclaimer, please refer the link below: https://bp.eurekasecurities.net/myeureka/Disclaimer.html http://14.141.46.130/researchdesk/disclaimer-A-N.html
Rating criteria
Large Cap. Return Mid/Small Cap. Return
Buy More than equal to 10% Buy More than equal to 15%
Hold Upside or downside is less than 10% Accumulate* Upside between 10% & 15%
Reduce Less than equal to -10% Hold Between 0% & 10%
Reduce/sell Less than 0%
* To satisfy regulatory requirements, we attribute ‘Accumulate’ as Buy and ‘Reduce’ as Sell. * Sun Pharma is a large cap company
Escalation of Halol warning letter into import alert and delay in key ANDA
approvals from US FDA.
Adverse movement of emerging market currencies.
KEY RISKS
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