MOSL: SUN PHARMA (Buy)-Changing product mix/cost curbs supporting margins
Sun Pharma: Changing product mix/cost curbs supporting margins
(SUNP IN, Mkt Cap USD14.8b, CMP INR437, TP INR540, 24% Upside, Buy)
- Third straight quarter of YoY revenue uptrend: Sun Pharma's (SUNP) revenue grew ~16% YoY to INR76.6b (our estimate: INR77.3b) in 3QFY19, led by higher Taro and API sales. Gross margin (GM) expanded ~350bp YoY (-260bp QoQ) to 71.7%, led by better revenue growth and an improved product mix. EBITDA margin, too, expanded by 210bp YoY to 23.1% owing to GM expansion and lower employee cost (-206bp YoY as % of sales), partly offset by higher other expenses (+190bp YoY). Revenue growth, coupled with a better operating margin, led to adj. PAT of INR9.4b (our estimate: INR10.2b). For 9MFY19, sales/EBITDA/adj. PAT increased 12%/26%/26% YoY to INR216b/INR47.3b/INR29b.
- US sales yet to pick up momentum: US business revenue increased 10.3% YoY (+5.8% QoQ; +22% YoY in INR terms) to USD362m, largely led by Taro (+14% YoY) on the back of higher volumes/prices. However, ex-Taro, US sales were subdued. In the specialty portfolio, SUNP commercialized Illumya in Nov'18, with ~800 doctors (~20% of total doctors) already prescribing the drug - the company expects Illumya to gain further traction in the coming quarters. SUNP also recently launched Xelpros (NDA), further ramp-up of which is likely to drive growth in the US business. Yonsa - which was launched in 1QFY19 - saw relatively low sales in the quarter. RoW market (+17.5% YoY) growth was restricted to some extent due to unfavorable currency in some geographies.
Sun Pharmaceutical and its subsidiaries are principally engaged in developing, manufacturing and marketing generic pharmaceutical products and bulk drugs. Co.'s products are mainly for the following therapy areas: psychiatrists, neurologists, gastroenterologists, diabetologists, chest physicians, consultant physicians, orthopedics, oncologists, gynecologists, ophthalmologists and cardiologists. Generic names of three principal products of Co. is Pentoxifyline, Pentoparzole Sodium, and Metformin Hydrochloride. Co.'s business can be divided into four segments: Indian branded generics, U.S. generics, international branded generics (ROW) and Active Pharmaceutical Ingredients (API).
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