Sun Pharma posts Rs 1,433-crore pre-tax profit in Q2, meets estimates

Emerging market sales grew only 3 per cent to $201 million
Sun Pharmaceuticals on Thursday said that China and Japan are becoming increasingly important markets for growth. It posted its second quarter results, mostly in line with Street expectations, with pre-tax profit of Rs 1,433.38 crore, against Rs 111.94 crore last year, which was impacted by settlements related to an antitrust litigation concerning Modafinil in the US. 

Sun Pharma has been working on forging partnerships for China. On Wednesday, it announced a licensing agreement with AstraZeneca UK to introduce certain novel ready-to-use infusion oncology products in China. Speaking to analysts during the earnings call, Managing Director Dilip Shanghvi said: “The focus is on developing relations with important players in that market (China) for our specialty products, and some generic products in which we do not expect much competition. As we continue to get approvals, China and Japan will become increasingly important.”

He added that most of the products the company is developing are for China and Japan. “These are mostly products we are developing for other markets. Looking at the size of these markets, we do not rule out developing something specific for them,” Shanghvi said. He admitted that the research and development (R&D) costs would include clinical studies related to China and Japan. The firm has guided for R&D expenditure in the range of 8-9 per cent of revenues. For Q2, the R&D spend stood at 6.1 per cent of sales (Rs 488 crore) and Shanghvi said it is expected to pick up in the second half. Around 24 per cent of its total R&D spend is for specialty products. 

Sun Pharma also said it would have to go through the regulatory process for its products in China, and does not expect significant revenues in the short term. 

This comes at a time when its US business has remained flat during Q2 year-on-year basis (YoY). Sun expects the market to remain competitive for generics in the US, which constitutes almost 30 per cent of its consolidated sales. It continues to focus on its specialty portfolio for the US and this, in turn, has pushed up marketing and branding costs (reflected in rise in other expenses). The company, however, posted numbers in line with estimates. 

Net profit stood at Rs 1,064 crore, with the resulting net profit margin at 13.4 per cent, against a net loss of Rs 269.6 crore in Q2FY19. Adjusted for the exceptional item of Rs 1,214 crore for Q2 last year (related to the Modafinil settlement), net profit growth was at 12.6 per cent, the company said. 

Income from operations came in at Rs 7,949 crore, up 16 per cent YoY. The India business clocked a robust 35 per cent YoY growth to Rs 2,515 crore, while US-finished dosage sales remained flat at $339 million. 

Emerging market sales were also flat — growing only 3 per cent YoY to $201 million. Rest of the world markets saw decent uptick over last year’s September quarter, clocking a 49 per cent rise. 

Sun Pharma said its earnings before interest, taxes, depreciation and amortisation (Ebitda) came in at Rs 1,616 crore, up 12 per cent, with the resulting Ebitda margin at 20.3 per cent. ICICI Direct said Ebitda margins were flat at around 22 per cent, YoY. However, they were better than I-Direct’s estimates of 20.5 per cent, mainly on account of a better product mix and lower R&D spends. 

The analysts added that key near-term triggers were the performance of its speciality pipeline — such as Ilumya, Odomzo, etc — and ramp-up of its Halol formulation plant. 

The stock closed up 3 per cent on the BSE at Rs 440.45 apiece.

“However, we expect investors to remain cautious, in the backdrop of the whistle-blower’s complaint filing to Sebi. These issues may outweigh the company’s sound fundamentals in the near term,” the brokerage added.

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