Sun Pharmaceutical Industries

Transcription

1 1QFY15 Result Update Institutional Equities Sun Pharmaceutical Industries Reuters: SUN.BO; Bloomberg: SUNP IN 14 August 2014 Performance In Line Despite Taro Missing Estimates Sun Pharmaceutical Industries (SPIL) reported 1QFY15 earnings in line with expectations, despite Taro significantly missing estimates, led by strong base business performance (we believe there was ~530bps QoQ improvement in base business margins at ~46%). The management retained its guidance of 13%-15% revenue growth for FY15, but we believe this is conservative, given the recent price hikes by Taro, and have factored in revenue growth of 18% for FY15E. We have revised upward our FY15/FY16 earnings estimates by 14%/9%, respectively, factoring in higher revenue growth as well as a lower tax rate (in line with the management s guidance of 15% for FY15 against 18% earlier). Consequently, we have revised our target price on SPIL to Rs872 (from Rs735 earlier), valuing the stock at 25xFY16E EPS of Rs34.9 (from Rs32.0 earlier) and retained Accumulate rating on it. Revenue broadly in line, despite Taro missing our estimate: SPIL reported revenue of Rs39.4bn for the quarter, which was marginally below our/bloomberg consensus estimates of Rs41.8bn/Rs42.0bn, respectively. Taro registered US$130mn sales, down US$57mn QoQ and against our estimate of US$198mn, owing to the price protection charge of ~US$79mn. Excluding Taro, US sales improved 15%-20% QoQ, as per our estimate. SPIL launched the generic version of Niaspan in the US in the last week of June 2014 and we believe the sales may have been driven because of channel filling. The management also highlighted that 1QFY15 included certain one-off sales (quantum undisclosed), which may not recur in future. Domestic sales growth was strong at 17% YoY, while ROW market growth of 9% was muted because of facility break-down and unavailability of raw materials (up 2% YoY in US$ terms, up 4% YoY in US$ terms excludingtaro sales). Base business margins expand by ~530bps QoQ: Despite Taro missing our estimates on the operating front (37% versus 54% in 4QFY14), SPIL s operating margin stood at 44.0%, in line with our estimate, implying ex-taro margin improved by ~530bps QoQ at ~46%. Importantly, most of the margin expansion was driven by lower other expenses (down 530bps QoQ and 330bps QoQ, as the base period included one-off expenses the management expects to continue its 1QFY15 run-rate). Gross margin declined 440bps YoY and 290bps QoQ. Minority interest was down 23% YoY (following lower Taro profitability), thereby driving adjusted PAT (1QFY14 PAT was impacted because of a provision of Rs25bn towards Protonix litigation settlement) to Rs13.9bn (up 12% YoY, but down 12% QoQ), in line with expectations. Key conference-call highlights: a) SPIL is on track to close the Ranbaxy deal by CY14-end. b) SPIL continues to be the sole generic player in Liposomal Doxorubicin; Johnson &Johnson s product is being sold on batch-by-batch approval basis. c) Price protection charges of Taro at ~US79mn pertains to the price hike done in 1QFY15. d) SPIL s manufacturing contract with a third party in lieu of the latter reimbursing SPIL US$400mn payment for Protonix-related penalty hasn t started yet. e) Tax rate is likely to remain at around 15% for FY15. f) SPIL s current cash balance stands at Rs120bn. g) No major impact because of the additional price controls in the domestic market. h) Pharmalucence acquisition was driven by the company s radio-pharmaceutical products and its sterile injectable facility, which SPIL will use to file its own products. We are participating in AsiaMoney s Brokers Poll We would be pleased if you vote for us as the feedback helps us align our equity research offerings to meet your requirements. Click Here ACCUMULATE Sector: Pharmaceuticals CMP: Rs800 Target Price: Rs872 Upside: 9% Praful Bohra praful.bohra@nirmalbang.com Sumit Singhania sumit.s@nirmalbang.com Key Data Current Shares O/S (mn) 2,071.1 Mkt Cap (Rsbn/US$bn) 1,662.3/ Wk H / L (Rs) 805/475 Daily Vol. (3M NSE Avg.) 2,466,044 Price Performance (%) 1 M 6 M 1 Yr Sun Pharma Nifty Index Source: Bloomberg Y/E March (Rsmn) 1QFY14 4QFY14 1QFY15 YoY (%) QoQ (%) Net revenue 35,027 40,586 39, (3.0) Total material costs 5,253 6,712 7, Raw mat.costs/net revenue (%) Personnel costs 5,034 5,244 5, Personnel costs/net revenue (%) R&D costs 1,921 2,936 2, (12.5) R&D cost/net revenue (%) Other expenses 7,307 7,689 6,137 (16.0) (20.2) Other expenses/net revenue (%) EBITDA 15,512 18,006 17, (3.8) EBITDA margin (%) Other income 748 1, (52.3) Interest costs (69.9) 68.3 Depreciation 978 1,061 1, Exceptional item 25, (100.0) - PBT (10,111) 18,844 16,904 (267.2) (10.3) Tax 1,511 1,199 2, Tax/PBT (%) (14.9) Share of minority partner 1,139 1, (22.8) (50.4) Reported PAT (12,761) 15,871 13,905 (209.0) (12.4) Adjusted PAT 12,413 15,871 13, (12.4) Please refer to the disclaimer towards the end of the document.

2 Exhibit 1: Financial summary Y/E March (Rsmn) FY13 FY14 FY15E FY16E FY17E Revenue 112, , , , ,614 YoY (%) EBITDA 48,900 71,956 84,910 96, ,561 EBITDA (%) Reported PAT 29,896 32,044 65,714 72,238 85,253 YoY (%) Adjusted PAT 35,732 57,218 65,714 72,238 85,253 YoY (%) Reported EPS Adjusted EPS RoE (%) RoCE (%) P/E (x) EV/EBITDA (x) Source:Company, Nirmal Bang Institutional Equities Research Exhibit 2: Segment-wise break-up Y/E March (Rsmn) 1QFY14 4QFY14 1QFY15 YoY (%) QoQ (%) FY13 FY14 YoY (%) India formulations 8,486 9,465 9, ,657 36, US formulations 20,314 24,861 23, (6.5) 61,538 97, ROW formulations 4,508 4,446 4, ,271 19, Total formulations 33,308 38,773 38, (1.8) 106, , Bulk 1,928 2,223 1,744 (9.6) (21.6) 7,549 8, Others (3.0) Total sales 35,270 41,011 39, (2.8) 114, , Source:Company, Nirmal Bang Institutional Equities Research Exhibit 3: Taro s financials Y/E March (US$mn) 1QFY14 4QFY14 1QFY15 YoY(%) QoQ(%) FY13 FY14 YoY(%) Net revenue (15.0) (30.4) Total raw material costs (a+b) (3.5) (2.1) TMC/net revenue (%) SG&A expenses (16.0) (3.5) SG&A exp./net revenue (%) R&D expenses R&D expenses/net revenue (%) PBIDT (34.7) (52.7) PBIDT margin (%) Other income (19) 1 - Interest costs (2) (5) 4 (270.3) (171.5) (4) (12) PBT (32.7) (52.2) Tax expenses (71.2) (71.9) PAT (21.6) (48.3) Share of minority partner Loss from discontinued operations (1) - - Reported PAT (21.6) (48.6) Sun Pharmaceutical Industries

3 Exhibit 4: Actual performance versus our estimates (Rsmn) Actual NBIE Variation Bloomberg Variation estimates (%) Estimates (%) Revenue 39,356 41,847 (6.0) 42,017 (6.3) EBITDA 17,326 18,411 (5.9) 18,532 (6.5) EBITDA margin (%) (10bps) Reported PAT 13,905 14,093 (1.3) 13, Exhibit 5: Changes in our FY15/FY16 estimates FY15E FY16E (Rsmn) Old New Change (%) Old New Change (%) Revenue 185, , , , EBITDA 79,413 84, ,475 96, EBITDA margin (%) bps bps Reported PAT 57,884 65, ,229 72, Adjusted PAT 57,884 65, ,229 72, Exhibit 6: P/E ratio (x) Aug Aug Aug Aug Aug Aug-14 3 Sun Pharmaceutical Industries

4 Financials Exhibit 7: Income statement Y/E March (Rsmn) FY13 FY14P FY15E FY16E FY17E Net sales 112, , , , ,614 % growth Raw material costs (20,733) (27,793) (34,963) (36,737) (43,046) Staff costs (15,345) (20,744) (25,513) (29,173) (34,184) R&D expenses (6,249) (9,862) (12,473) (14,263) (16,712) Other expenses (21,771) (30,448) (32,128) (41,059) (48,111) Total expenditure (64,099) (88,848) (105,077) (121,231) (142,053) EBITDA 48,900 71,956 84,910 96, ,561 % growth EBITDA margin (%) Other income 1,512 5,081 4,725 4,559 5,672 Interest costs 2,000 (442) (500) (600) (700) Depreciation (3,362) (4,094) (5,102) (5,597) (6,092) Profit before tax 49,050 72,501 84,033 94, ,441 % growth Exceptional Items (5,835.8) (25,174.0) Tax (8,456) (7,908) (12,605) (14,164) (16,716) Effective tax rate (%) Net profit 34,759 39,420 71,428 80,265 94,725 % growth Minority Interest (4,863) (7,375) (5,714) (8,026) (9,473) Reported net profit 29,896 32,044 65,714 72,238 85,253 % growth Adjusted net profit 35,732 57,218 65,714 72,238 85,253 % growth Exhibit 9: Balance Sheet Y/E March (Rsmn) FY13 FY14P FY15E FY16E FY17E Equity 1,036 2,071 2,071 2,071 2,071 Reserves 148, , , , ,213 Net worth 149, , , , ,284 Short-term loans Long-term loans 2,547 24,840 23,850 23,850 23,850 Total loans 2,597 24,890 23,900 23,900 23,900 Deferred tax liabilities/(assets) (7,122) (9,109) (9,109) (9,109) (9,109) Minority interest 16,351 19,212 24,926 32,953 42,425 Liabilities 161, , , , ,500 GGross block 87, , , , ,109 DDepreciation 30,618 34,711 39,813 45,410 51,502 NNet block 56,475 67,398 71,296 74,699 77,607 CCapital work-in-progress 5,626 9,193 9,193 9,193 9,193 LLong-term investments 23,021 26,765 33,885 41,005 48,125 IIInventories 25,778 31,230 42,993 49,180 57,631 DDebtors 27,108 22,004 45,211 51,717 60,605 CCash 40,587 75, , , ,032 Liquid Investments 1,095 1,095 1,095 1,095 1,095 Other current assets 19,947 47,377 33,269 38,056 44,596 Total current assets 114, , , , ,960 Creditors 13,565 13,283 22,237 25,656 30,063 Other current liabilities 24,348 44,683 51,597 53,173 56,317 Total current liabilities 37,913 57,965 73,834 78,829 86,380 Net current assets 76, , , , ,580 Total assets 161, , , , ,500 Exhibit 8: Cash flow Y/E March (Rsmn) FY13 FY14P FY15E FY16E FY17E EBIT 45,538 67,862 79,808 90, ,469 Inc.(/dec )in working capital (11,115) (27,027) (13,127) (14,061) (19,473) Cash flow from operations 34,423 40,835 66,681 76,409 86,996 Other income 1,512 5,081 4,725 4,559 5,672 Depreciation 3,362 4,094 5,102 5,597 6,092 Interest paid (-) 2,000 (442) (500) (600) (700) Tax paid (-) (8,456) (7,908) (12,605) (14,164) (16,716) Dividends paid (-) (6,419) (11,160) (7,742) (15,876) (17,453) Exceptional Items (5,836) (25,174) Net cash from operations 20,586 5,327 55,661 55,924 63,891 Capital expenditure (-) (24,785) (18,584) (9,000) (9,000) (9,000) Net cash after capex (4,199) (13,257) 46,661 46,924 54,891 Inc./(dec.) in short-term borrowing (370) Inc./(dec.) in long-term borrowing (241) 22,293 (990) - - Inc./(dec.) in preference capital Inc./(dec.) in borrowings (610) 22,293 (990) - - (Inc./(dec). in investments (1,987) (3,745) (7,120) (7,120) (7,120) Equity issue/(buyback) - 1, Cash from financial activities (2,597) 19,584 (8,110) (7,120) (7,120) Others 7, Opening cash 33,672 40,587 75, , ,259 Closing cash 40,587 75, , , ,032 Change in cash 6,915 35,314 38,551 39,806 47,773 Exhibit 10:Key ratios Y/E March FY13 FY14P FY15E FY16E FY17E Per share (Rs) Reported EPS Adjusted EPS DPS BV/share Dividend payout (%) Performance ratios (%) RoE RoCE Valuation ratios (x) P/E P/BV EV/net sales EV/EBITDA Efficiency ratios Asset turnover (x) Working capital/sales (x) Receivable days Inventory days Payable days Sun Pharmaceutical Industries

5 Rating track Date Rating Market price (Rs) Target price (Rs) 1 November 2011 Hold November 2011 Hold January 2012 Buy February 2012 Buy March 2012 Hold April 2012 Hold May 2012 Hold August 2012 Sell October 2012 Sell October 2012 Sell November 2012 Sell January 2013 Sell January 2013 Hold May 2013 Hold 996 1, June 2013 Hold 981 1, June 2013 Hold 968 1, August 2013* Buy November 2013* Hold January 2014* Buy February 2014* Buy April 2014* Buy June 2014* Buy July 2014* Accumulate *Post 1:1 bonus share issue 5 Sun Pharmaceutical Industries

6 Disclaimer Stock Ratings Absolute Returns BUY > 15% ACCUMULATE -5% to15% SELL < -5% This report is published by Nirmal Bang s Institutional Equities Research desk. Nirmal Bang has other business units with independent research teams separated by Chinese walls, and therefore may, at times, have different or contrary views on stocks and markets. This report is for the personal information of the authorised recipient and is not for public distribution. This should not be reproduced or redistributed to any other person or in any form. This report is for the general information for the clients of Nirmal Bang Equities Pvt. Ltd., a division of Nirmal Bang, and should not be construed as an offer or solicitation of an offer to buy/sell any securities. We have exercised due diligence in checking the correctness and authenticity of the information contained herein, so far as it relates to current and historical information, but do not guarantee its accuracy or completeness. The opinions expressed are our current opinions as of the date appearing in the material and may be subject to change from time to time without notice. Nirmal Bang or any persons connected with it do not accept any liability arising from the use of this document or the information contained therein. The recipients of this material should rely on their own judgment and take their own professional advice before acting on this information. Nirmal Bang or any of its connected persons including its directors or subsidiaries or associates or employees or agents shall not be in any way responsible for any loss or damage that may arise to any person/s from any inadvertent error in the information contained, views and opinions expressed in this publication. Access our reports on Bloomberg Type NBIE <GO> Team Details: Name Id Direct Line Rahul Arora CEO rahul.arora@nirmalbang.com - Dealing Ravi Jagtiani Dealing Desk ravi.jagtiani@nirmalbang.com , Pradeep Kasat Dealing Desk pradeep.kasat@nirmalbang.com /8101, Michael Pillai Dealing Desk michael.pillai@nirmalbang.com /8103, Umesh Bharadia Dealing Desk umesh.bharadia@nirmalbang.com Nirmal Bang Equities Pvt. Ltd. Correspondence Address B-2, 301/302, Marathon Innova, Nr. Peninsula Corporate Park Lower Parel (W), Mumbai Board No. : /1 Fax. : Sun Pharmaceutical Industries