Sun Pharmaceutical Laboratories Ltd’s consolidated sales rose by 78% to around Rs1,400 crore in the June quarter, compared with the year-ago period, as both its domestic and overseas formulations business nearly doubled in size. Though this quarter’s growth will not be repeated, Sun’s sales guidance of 18-20% for fiscal 2011 appears easily achievable. Revenue needs to grow by just 6% in the remaining three quarters to meet this target, though Sun will not have the benefit of sales from two key products in the US market.
Sun’s domestic branded generic product revenue rose by 91% to Rs598 crore in the June quarter, partly due to a low base effect in the June 2009 quarter. Comparable sales growth was around 17%. Sales rose by 17% on a sequential basis as well. The domestic pharmaceutical market has been growing at a fast rate and companies are focusing more on their home market, especially after suffering setbacks in developed markets.
Sun launched 10 key products during the quarter. Its stand-alone operating profit margin improved to 41% in the June quarter, compared with 37% for fiscal 2010. Overseas formulation sales doubled to Rs1,276 crore. In the US, sales at its subsidiary Caraco Pharmaceutical Laboratories Ltd nearly tripled to $130 million, or around Rs610 crore. Sales rose by 73% on a sequential basis. The firm was selling the generic version of Sanofi-Aventis’ blockbuster drug Eloxatin ($1.2 billion US revenues) in the quarter. After a court order, Sun has stopped selling this drug since 30 June. It has also stopped selling the generic version of Wyeth’s Protonix. Thus, US revenues will decline on a sequential basis in the current quarter. Regular product launches will contribute to revenue from continuing products. Sun got approvals to market seven new generic drugs during the June quarter and one more in July from the US FDA.A
Graphi: Ahmed Raza Khan/Mint
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The company’s consolidated operating profit margin rose to 44% in the June quarter, compared with 16% in the year ago period. That was partly due to one-time revenue in the US market and Caraco reporting a profit instead of a loss. Margins have improved on a sequential basis too, but with sequential sales set to dip, the next few quarters will reveal the sustainable margin levels. Another reason for better margins is also lower costs, as Caraco’s generic drug applications have fallen. Once that reverses, costs will increase again.
Sun’s results came above expectations, and its share price rose by around 2% as a result. It trades at nearly 25 times its consensus per share earnings estimate for fiscal 2011. That may seem tame considering this quarter’s performance but appears fair considering that the sustainable level of earnings is lower. Any positive surprises in the form of new first-to-file drug approvals, a resolution of Caraco’s ongoing FDA issues, and Sun winning its legal battle for acquiring Israel’s Taro Pharmaceutical Industries Ltd will provide key valuation triggers.