After a meagre 2% growth in sales during fiscal 2010, Sun Pharmaceutical Industries Ltd is forecasting higher growth of 18-20% for the current fiscal. Clearly, the management expects certain events during the year to offset the impact of the negative developments of fiscal 2010.

The Indian branded generics business contributed to around 45% of sales and will play a key part in attaining this growth. In fiscal 2010, sales declined by 6.6%, but adjusting for a one-time sale, sales was up by 15%. Adjusted growth in the March quarter was up 14%. With no one-off effects present in the current fiscal, reported growth in domestic branded generics should return to normal.

Its launch of 49 new products (11 in the March quarter) would have contributed to growth. The firm said nearly three-fourths of its sales growth came from older products. The domestic pharmaceutical market’s high growth rate is expected to sustain in fiscal 2011, too.

Graphic: Yogesh Kumar/Mint

Meanwhile, exports from its Indian facilities will continue to drive growth for the firm. Apart from resumption of manufacturing at Caraco units, any first-to-file generic opportunities during the current fiscal could drive growth.

A key highlight about the firm is its relatively superior margin profile. Due to the loss of Caraco’s revenue and the base effect of certain product launches, its margin slipped from 44% to 32% in fiscal 2010 but has improved to 37% in the March quarter.

Sun Pharma does not expect its higher growth guidance to result in a dilution in margins. That sets the stage for a smart recovery in fiscal 2011 after a 26% drop in net profit in fiscal 2010.

Valuations may, however, improve only after investors get an inkling of where it will get this growth from.

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