Domestic sales rose by 23% to Rs562 crore, offsetting the 3% decline in overseas sales. Its international business was hit partly due to loss of sales from products made by its subsidiary Caraco Pharmaceutical Laboratories Ltd. Caraco’s sales fell by 7% in dollar terms in the quarter but by 29% in rupee terms.

Non-Caraco formulation sales grew by 32%, limiting the drop in overseas sales. Also, the presence of certain non-recurring revenue in the previous year contributed to a high base effect.

Graphic: Yogesh Kumar / Mint

The firm said that material costs as a percentage of sales rose because of higher margin sales from one-off opportunities last year. But Sun’s profits appear stable on a sequential basis. In the September quarter, its net profit was Rs454 crore, of which about Rs130 crore was attributable to one-off items. Adjusted for that, its December quarter net profit has risen on a sequential basis.

Domestic and non-Caraco formulation sales will be the key segments driving growth in the near term. Its bulk drug business is also becoming a key contributor to sales, particularly as what it supplied earlier to Caraco is now being sold in the market. If Caraco’s performance stabilizes, the base effect on Sun’s performance will cease after two more quarters. Also, some of the products being made at Caraco are being shifted to other plants, and hence contribution to revenues will increase.

Launches of generic drugs made at its other facilities too will contribute to growth. Another development will be the expected launch of venlafaxine, the generic version of the blockbuster drug Effexor SR, an antidepressant, in fiscal 2010. These will provide a foundation for an improvement in Sun’s performance, but an early restart of Caraco’s operations or a favourable outcome in the Taro Pharmaceuticals Industries Ltd case, giving Sun majority control of the Israeli firm, are the big triggers.

The company’s share price had touched a 52-week high of Rs1,605 on 8 January and trades at around Rs1,470 at present, discounting its estimated fiscal 2011 earnings per share by about 19 times.

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