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MOSL: Morning India (27/August/19): 1. Sun Pharma – ART (Transaction unwinding allays investor concerns); 2. EcoScope; 3. Expert Speak; 4. Healthcare Monthly

MOrning India (27/August/19): 1. Sun Pharma – ART (Transaction unwinding allays investor concerns); 2. EcoScope; 3. Expert Speak; 4. Healthcare Monthly

 

Today’s top research theme

Sun Pharma (ART): Transaction unwinding allays investor concerns

• Sun Pharmaceuticals’ (SUNP) FY19 annual report highlights the un-winding of transactions that had evoked investor concerns by (a) squaring-off of loans advanced to Atlas with outstanding provisions related to product sales amounting ~INR22.4b, and (b) transfer of domestic formulation (DF) generic distribution from promoter-owned Aditya Medisales Limited (AML) to its wholly-owned subsidiary.
• Sales to entities owned by KMP (primarily AML) stood at INR73.7b and receivables at INR6.1b. Operating cash flow post interest declined 49% to INR17.4b as cash conversion days rose to 303 days (FY18: 244 days). Increase in capex to INR31.6b (FY18: INR18.9b) due to milestone payments made for specialty products led to FCF turning negative to INR14.3b (FY18: INR15.4b). Thus, other intangible assets increased significantly to INR63.5b (FY18: INR51.2b). Goodwill remained high at INR58.5b (FY18: INR56.1b). Consol. revenue increased 10% to INR290.7b (FY18: INR264.2b) led by recovery in US sales (grew 22% to INR107b).
• Adjusting for exceptional loss, RoE, albeit low, improved 130bp to 9.1%, led by rise in NP margins. Contingent liability stood high at INR66.4b, 16% of NW due to income tax disputes (at INR58.9b).

Piping hot news

Government gets windfall gain from RBI; raises expectation for stimulus

The government will receive a windfall from the central bank in the current financial year thanks to a much higher-than-expected dividend, allowing Prime Minister Narendra Modi’s administration to provide a tottering economy with additional fiscal stimulus. The decision by a committee specifically set up to look at whether the Reserve Bank of India (RBI) was holding on to too much of its reserves recommended that it provide the government with 1.76 trillion rupees ($24.62 billion) as dividend in the bank’s fiscal year that ended June 30.