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Brokerages Maintain Stance On Sun Pharma After Its Q2 Results

Sun Pharma posted higher-than-expected sales in its India business, with operating income rising 16.7 percent to Rs1,789.80 crore.

Dilip Shanghvi, managing director of Sun Pharmaceutical Industries Ltd. (Photographer: Kuni Takahashi/Bloomberg)
Dilip Shanghvi, managing director of Sun Pharmaceutical Industries Ltd. (Photographer: Kuni Takahashi/Bloomberg)

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.