Brokerages Maintain Stance On Sun Pharma After Its Q2 Results

Most analysts maintained their stance on Sun Pharmaceutical Industries Ltd. after September quarter results of India’s largest drugmaker met estimates, aided by higher-than-expected sales in domestic business.

Operating income rose 16.7 percent to Rs 1,789.8 crore, higher than analyst expectations, due to lower research and development, and marketing expenses.

In a conference call after its earnings, Sun Pharma said that its other operating income was also higher due to out-licensing of Ximino, an acne medication.

Key Highlights Of Sun Pharma’s Conference Call

• Other expenses were higher due to branding and promotional spends.
• Material costs higher due to higher cost of goods sold for Taro.
• Expect higher R&D spending for specialty pipeline.
• No further erosion in the base business for U.S.
• Base erosion of 5 percent impacted U.S. portfolio.
• Seasonality in Levulan and Absorica led to the decline in speciality.

Here’s what brokerages had to say about Sun Pharma’s Q2 Results 2019-20:

Emkay

• Maintains Hold; hikes target price to Rs 490 from Rs 465 apiece.
• Q2 Ebitda above as R&D and advertising costs remained largely flat QoQ.
• India growth positively surprised but base U.S. sales, excluding Taro, was weak.
• Pick-up in specialty business key in raising earnings trajectory.

PhillipCapital

• Maintains Neutral with target price of Rs 450 apiece.
• Q2 earning performance was in line.
• See earnings challenges led by staggered penetration of specialty portfolio, continued higher specialty promotional spend, increasing R&D, and continued pricing issues in the U.S.
• No near-term benefit from its strategic initiatives.

Morgan Stanley

• Maintains Overweight, hikes target price to Rs 530 apiece from Rs 505 apiece.
• Q2 bear, base business appears stabilised.
• Base business appears on course for delivering on positive operating leverage in coming quarters.
• Constructive on specialty business, remains top pick.

Edelweiss

• Maintains Reduce with target price of Rs 380.
• India boost, Pola acquisition, and lower R&D stabilise earnings.
• Medium-term earnings growth will be challenging, given Ilumya’s slow uptake, non-recurrence of one-off sales and increase in R&D spend and tax rate.

HSBC

• Maintains Hold with targe price of Rs 425 apiece.
• Q2 results largely in-line at operating level; global specialty sales largely flat QoQ.
• Cost pressure to continue in view of ongoing spend for specialty drugs.
• Execution of specialty launches remains key for sustainable earnings growth.

Prabhudas Lilladher

• Maintains Reduce with target price of Rs 396 apiece.
• U.S. disappoints in sales and gross margins.
• Growth of India formulations in H2FY20 could be lower.
• Valuation remains challenging and one of the highest among its peers.