Some revenue support was provided by emerging markets as well as rest of world (excluding US and emerging markets), which grew 14-33 per cent. But, given their lower contribution to revenue, it wasn't enough to lift overall revenue, which at Rs 7,683 crore grew eight per cent year on year, lower than Bloomberg consensus estimate of Rs 7,955 crore.
With the US and India businesses posting a muted performance, Sun's profitability failed to meet expectations. Thus, gross profit margins declined 410 basis points (bps) year on year and 530 bps sequentially. Lower research and development expenses (eight per cent of sales, versus target of 10 per cent) helped curb expenditure, but even then operating profit at Rs 2,455 crore fell short of expectation of Rs 2,623 crore. Likewise, net profit at Rs 1,472 crore (down five per cent year on year) was much lower than estimate of Rs 1,782 crore. While India business may rebound, pressure on US sales is not expected to see respite soon. Sun's own generic launches remain impacted given US regulatory issues at its Halol plant despite a good product pipeline. Now, even Taro's profitability has come under pressure. Besides, there are some concerns on drug price hike probes in the US, though analysts say it's not easy to prove such charges. While Sun may accumulate gains from progressing Ranbaxy integration, Halol plant clearance by US remains the biggest trigger for the stock.