idirect technofunda sunpharma apr15

ICICI Securities Ltd. | Retail Equity Research

Sun Pharmaceuticals (SUNPHA) CMP- | 952.00 Buying range: | 930.00-945.00 Target: | 1090.00 Stop loss: | 855.00

Key technical observations The share price of Sun Pharmaceuticals has approached its key value area on Tuesday amid stake sale by foreign

co-promoter at a discount to market price. We believe that the current decline has not altered the larger structural fabric of the long term trend for the stock. The larger degree price chart remains firmly bullish hence we believe the current reversion of price to key support area offers a lucrative buying opportunity for medium term investors to ride the structural up trend

The stock witnessed a strong run up from its May 2014 lows of | 547 to post a life-time high of | 1200 in early April 2015. The steep correction of ~ 22% from the life high over past two weeks has led stock price towards key value area placed near | 930 levels being the confluence of following technical parameters:

o The long term rising trend line connecting significant lows of June 2014, January 2015 and February 2015 is placed at | 930 levels

o The 80% retracement of preceding up leg during February 2015 April 2015 (| 860 1200) is placed at | 930

o Among medium term moving averages the rising 21-week EMA is currently placed at | 952 levels The entire up move since June 2014 is backed by higher volumes (50-week average volumes have been 20%

higher than its 200-week average of 0.9 crore shares per week). As per Dow Theory principle, volumes expanding in direction of primary trend corroborates the overall bullish stance

Considering the overall positive price structure and placement of the stock at important support region, we

believe the stock offers a good entry opportunity with decent reward/risk set-up. We expect the stock to bottom out at current levels and resolve higher to retrace the recent decline (|1200 to |930) by minimum 61.8% over the coming months which opens the room for a rally towards | 1090 levels over the medium term horizon

Among oscillators, the weekly RSI has approached its bull market support band of 45-50 readings after the recent

decline. Historically, over the last two years the RSI approaching this intermediate support region has led to a steady recovery on price front. This precedence also favours bullish argument for the stock from medium term perspective

Time frame: 6 months

Key Technical Data Recommended Price 930-945

Price Target 1090.00

Stoploss 855.00

52 Week High 1200.80

52 Week Low 572.00

50 days EMA 1012.00

200 days EMA 868.00

52 Week EMA 847.00 *Recommendation given on i-click to gain on April 21, 2015 at 11:28 hrs at then market price of | 943

Stock price movement vs. BSE Sensex

22,00023,00024,00025,00026,00027,00028,00029,000

560660760860960

1,0601,1601,260

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Sun Pharma BSE Sensex Price performance over last five years

61%

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48% 54% 46%

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2010 2011 2012 2013 2014Year

Techno Funda PickApril 22, 2015


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Exhibit 1: Sun Pharmaceuticals Weekly Bar Chart

Source: Bloomberg, ICICIdirect.com Research

Research Analyst

Dharmesh Shah [email protected] Siddhant Khandekar [email protected]

The share price has approached key value area post the stake sale by foreign co-promoter. The larger degree price structure remains bullish and we believe that the current decline offers a good entry opportunity for medium term investors to position themselves to ride the next up move

1200

14-week RSI approached its bull market support zone of 45-50 readings with the recent correction and suggests a reversal may be on the cards

860 Support @ 930 Rising trend line, 80% retracement & 21-week EMA

61.8% @ 1090


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Fundamental view

Established in 1983, Sun Pharma is the largest Indian pharmaceutical company both in terms of market capitalisation and turnover (FY14). The company manufactures and markets a large basket of pharmaceutical formulations in India, the US and several other markets across the world. However, the US and Indian formulations are by far the core strengths and growth drivers for the company.In April 2014, Sun acquired Ranbaxy in a shares swap deal. Under the terms of the agreed deal, Ranbaxy shareholders including Daiichi had received 0.8 Sun Pharma share for each share of Ranbaxy share. The Deal Was closed on 6th April 2015.

Ranbaxys acquisition is likely to provide more therapeutic diversification to Suns portfolio and is likely to improve its market share in key segments in the domestic space. Its domestic market share has substantially improved to 9.1% from 5.5% with a leadership in as many as 11 therapies. Ranbaxys strong hold in the fast growing emerging markets (50% of Ranbaxy's sales) will complement Suns presence in this space. Regarding US, the company is determined to address Ranbaxys cGMP issues as four out of five US centric facilities remain under USFDA embargo. Suns will gain leadership position in the niche generic derma space also get entry in to branded and OTC segments.

Sun is trading at 30-40% premium to BSEHC PE and its peers such as DRL, Lupin and Cipla on a fairly consistent

basis. This is on account of 1) Robust financials- a culmination of productive acquisitions, product launches at the right time and at the same time keeping an eye on margins and return ratios 2) above average profitability margins and 3) healthy return ratios despite higher cash component. The management has also guided for US$ 250 million of synergy benefits from Ranbaxy the acquisition by FY18

Stock Data

ParticularMarket CapitalisationDebt (FY14E)Cash & Cash Equivalents (FY14E)EV (| Cr)52 week H/L 1201/572Equity capitalFace value | 1MF Holding (%) 5.7FII Holding (%) 22.5

Amount| 230492 crore

| 2489 crore| 9589 crore

| 223392 crore

| 241.1 crore

Exhibit 1: Key metrics* FY14 FY15E FY16E FY17E

PE (x) 37.8 36.6 29.9 26.2Target PE (x)* 37.5 36.3 29.7 26.0EV to EBITDA (x) 16.3 14.5 11.6 9.7Price to book (x) 7.7 6.8 5.8 5.2RoNW (%) 17.0 26.7 25.4 23.1RoCE (%) 34.3 31.8 31.3 28.8

* Base business value; we have not considered Ranbaxys numbers

Exhibit 2: Financial highlights (| Crore) FY14 FY15E FY16E FY17ENet Sales 16080.4 18119.2 21224.6 23883.5EBITDA 7195.6 7869.6 9280.2 10456.4Adj. Profit 3204.4 5910.6 7221.1 8256.5Adj. EPS (|) 27.6 28.5 34.9 39.9

Source: Company, ICICIdirect.com Research


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NOTES:

It is recommended to enter in a staggered manner within the prescribed range provided in the report

Once the recommendation is executed, it is advisable to keep strict stop loss as provided in the report on closing basis

The recommendations are valid for three to six months and in case we intend to carry forward the position,

it will be communicated through separate mail. Trading Portfolio allocation

It is recommended to spread out the trading corpus in a proportionate manner between the various technical research products

Please avoid allocating the entire trading corpus to a single stock or a single product segment

Within each product segment it is advisable to allocate equal amount to each recommendation

For example: The Daily Calls product carries 3 to 4 intraday recommendations. It is advisable to allocate

equal amount to each recommendation


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Recommended product wise trading portfolio allocation

Allocations Return Objective

Products Product wise allocation

Max allocation in 1 stock

Number of Calls Frontline Stocks Mid-cap stocks

Duration

Daily Calls 8% 2-3% 3-4 Stocks 0.50-1% 2-3% Intraday Short term Delivery 6% 3-5% 7-10 p.m 4-5% 7-10% Opportunity based Weekly Calls 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Weekly Technical 8% 3-5% 1-2 Stocks 5-7% 7-10% 1 Week Monthly Call 15% 5% 2-3 Stocks 7-10% 10-15% 1 Month Monthly Technical 15% 2-4% 5-8 Stocks 7-10% 10-15% 1 Month Techno Funda 15% 5-10% 1-2 Stocks 10% and above 15% and above 6 Months Technical Breakout 15% 5-10% 1-2 Stocks 10% and above 15% and above 3-6 Months Cash in Hand 10% - - - - -

100%


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Pankaj Pandey Head Research [email protected] ICICIdirect.com Research Desk, ICICI Securities Limited, 1st Floor, Akruti Trade Centre, Road No 7, MIDC Andheri (East) Mumbai 400 093 [email protected]


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Disclaimer ANALYST CERTIFICATION We /I, Dharmesh Shah, Siddhant Khandekar Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

Terms & conditions and other disclosures: ICICI Securities Limited (ICICI Securities) is a full-service, integrated investment banking and is, inter alia, engaged in the business of stock brokering and distribution of financial products. ICICI Securities is a wholly-owned subsidiary of ICICI Bank which is Indias largest private sector bank and has its various subsidiaries engaged in businesses of housing finance, asset management, life insurance, general insurance, venture capital fund management, etc. (associates), the details in respect of which are available on www.icicibank.com. ICICI Securities is one of the leading merchant bankers/ underwriters of securities and participate in virtually all securities trading markets in India. We and our associates might have investment banking and other business relationship with a significant percentage of companies covered by our Investment Research Department. ICICI Securities generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover. The information and opinions in this report have been prepared by ICICI Securities and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ICICI Securities. While we would endeavour to update the information herein on a reasonable basis, ICICI Securities is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent ICICI Securities from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or ICICI Securities policies, in circumstances where ICICI Securities might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ICICI Securities will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by any recipient. The recipient should independently evaluate the investment risks. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. ICICI Securities accepts no liabilities whatsoever for any loss or damage of any kind arising out of the use of this report. Past performance is not necessarily a guide to future performance. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. ICICI Securities or its associates might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months. ICICI Securities or its associates might have received any compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of managing or co-managing public offerings, corporate finance, investment banking or merchant banking, brokerage services or other advisory service in a merger or specific transaction. ICICI Securities or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the companies mentioned in the report in the past twelve months. ICICI Securities encourages independence in research report preparation and strives to minimize conflict in preparation of research report. ICICI Securities or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither ICICI Securities nor Research Analysts have any material conflict of interest at the time of publication of this report. It is confirmed that Dharmesh Shah, Siddhant Khandekar Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions. ICICI Securities or its subsidiaries collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report. Since associates of ICICI Securities are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report.

idirect technofunda sunpharma apr15

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