Sun Pharma has delivered strong topline (CAGR of 43% over FY06-08) and bottomline growth (CAGR of 61% over FY06-08) in the recent past, mainly aided by upsides from the sale of exclusivity products (one time opportunity) in the US market.
Our base case assumes an overall steady growth of 11% over FY08-11E (adjusted for exclusivity sales, estimate a growth of 19% over FY08-11E).
Its key segments, namely, domestic sales and exports are expected to grow at 18% and 5% (adjusted for exclusivity sales, estimate a growth of 19% over FY08-11E) respectively over FY08-11E.
US continues to be the focus market for Sun Pharma. However with its ’at risk’ launches coming of the cliff, we expect the overall US business to decelerate over FY09-11E by (~15)% (in dollar terms).
Moreover the issuance of warning letter by FDA for non-compliance of standard operating procedures will prevent new approvals from its Detroit facility (currently 19 ANDAs are pending approval from this facility).
Nearly 96 ANDAs are pending approval for SUNP, a) the positive clearance after the subsequent inspection by US FDA and b) intermittent Para IV opportunities will be the key catalysts for this business in the medium term.
Outlook and valuation
The outcome of Taro litigation will determine the future course of strategy for the US markets.
The Israeli Supreme Court has asked for another round of mediation between SUNP and Taro promoters, with an objective to reach an out of court settlement.
The diversified business mix through strong presence in niche specialty segments in domestic Indian market (along with a field force of 2,450), increasing presence in US generics, and other semi regulated markets will provide the requisite thrust to maintain the growth momentum.
We are initiating coverage on Sun Pharmaceuticals with a MARKET PERFORM rating. At Rs1,021 the stock is trading in line with the global generics forward PE multiple of 13.0x over FY10E.