Sun Pharma up nearly 2% post-March quarter nos; here's what brokerages say

The fall in the company's PBT was below the consensus estimate of Rs 1,361 crore, caused by multiple one-offs and lower other income.
Shares of pharma major, Sun Pharma, oscillated between the positive and negative zones in the morning session on Thursday after the company reported a 17 per cent year-on-year (YoY) decline in its consolidated profit before tax (PBT) at Rs 577 crore for the March quarter.

At 10:14 am, the stock was trading nearly 2 per cent higher at Rs 458.70 apiece on the BSE. In comparison, the benchmark S&P BSE Sensex was ruling over a per cent higher at 31,967.21 levels.  In the early trade, the stock had slipped over 1 per cent to Rs 444.75 against Wednesday's close of Rs 450.55. 

Sun Pharma shares had hit a 52-week high of Rs 504.85 apiece on the BSE on April 27. Its 52-week low stands at Rs 315.20, touched on March 23. 

The fall in the company's PBT was below the consensus estimate of Rs 1,361 crore, caused by multiple one-offs and lower other income. Net profit, too, saw a 37 per cent YoY fall to Rs 399.8 crore, against estimates of Rs 950-1,000 crore. The one-offs pertained to an anti-trust litigation, a central excise refund, and a settlement reached by its US subsidiary Dusa Pharmaceuticals. READ MORE

Consolidated sales were in line with estimates at Rs 8,078 crore — up 15 per cent YoY led by the domestic business, global specialty, and rest-of-the-world business. The India business reported sales of Rs 2,365 crore — up 8 per cent YoY adjusted for the distribution charge. Stocking by consumers and the launch of new products helped record growth in its India business.

As regards Covid-19 impact, the company said that despite its proactive Covid risk response initiative, it does estimate some softening of sales in the near term due to the lockdown and stocking up by customers, although it is difficult to quantify the impact as of now. Our endeavour will be to ensure that we are least impacted.

What brokerages say

Analysts at Prabhudas Lilladher note that Sun Pharma's US business continues to be the biggest hangover on earnings over FY20-22E due to Taro’s continued underperformance, lower-than-expected ramp up in US Specialty, regulatory hurdle in Halol, and pricing pressure in US derma products. 

"Sun Pharma's earnings are expected to stay muted in the US while India formulations could act as a savior to hold earnings. We increase our earnings estimate by 7 per cent primarily due to growth in the domestic market and arrive new TP of Rs 467 (earlier Rs 436) based on 21x PE of FY22E, while maintain ‘Hold’ recommendation," the brokerage said. 

Those at Motilal Oswal Financial Services (MOFSL) say they believe "Sun Pharma's return on equity (ROE) is at a trough and would improve with a 20 per cent earnings compound annual growth rate (CAGR) over FY20–22, led by improving traction in the Specialty portfolio, enhanced MR effort in Domestic Formulations (DF), and better operating leverage. Maintain Buy."

ICICI Securities, too, maintains a "buy" rating on the stock with the target price of Rs 528. "Continued scale-up in global specialty sales is positive and we believe the loss in Absorica sales post generic competition in H2FY21 could be compensated by the ramp-up of Ilumya and Cequa. We remain positive on long-term outlook considering strong India business, pick-up in specialty sales, and attractive valuations," the brokerage said in a note dated May 27. 

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