MOSL: SUN PHARMA (Buy)-Margin stable sequentially; specialty pipeline to drive US business

Sun Pharma: Margin stable sequentially; specialty pipeline to drive US business

(SUNP IN, Mkt Cap USD16.6b, CMP INR467, TP INR560, 20% Upside, Buy)

• SUNP’s 4QFY18 revenue declined marginally by ~2% YoY to INR67.1b (est. of INR65.8b), primarily due to 6.4% YoY de-growth in the US business (~35% of revenues). Gross margin expanded sharply by ~580bp YoY (+540bp QoQ) to 73.6%. This, along with a decline in other expenditure by ~120bp (as % of sales), led to an improvement in the EBITDA margin to 21.1%. EBITDA increased ~15% YoY (+1.4% QoQ) to INR14.2b (est. of INR14.4b). During the quarter, SUNP received milestone payment of USD20m (~INR1.3b) from Almirall S.A. for licensing agreement for the development and commercialization of Tildrakizumab. PAT stood at INR13b due the milestone payment and the tax benefit of INR2.6b, adjusting for which PAT came in at INR9.2b. For FY18, sales, EBITDA and adj. PAT stood at INR263.4b (-13%), INR54.6b (-38%) and INR33.7b (-46%), respectively.
• Key launches to drive US biz: US business de-grew ~3% YoY to USD368m (USD381m in 4QFY17 and USD328m in 3QFY18), led by pricing pressure as well as lower AG sales and Absorica sales due to copay program. SUNP expects the US business to improve FY19 onward, led by ramp-up of specialty products (Ilumya, Yonsa and Seciera) and better Absorica sales. SUNP launched 15 products in the domestic market and discontinued non-profitable products. It expects the domestic business to grow by 10-12% in FY19. SUNP guided for low-double-digit growth in FY19.