Logo of Sun Pharma. (REUTERS)
Logo of Sun Pharma. (REUTERS)

Sun Pharma gets a domestic boost in Q2, but it’s too early to rejoice

  • Revenues from the US region were flat in the second quarter of FY20 compared with last year
  • Sun Pharma’s domestic business saw a year-on-year growth of 35%, the highest in six years

Sun Pharmaceutical Industries Ltd’s second quarter figures have outrun estimates, showing that the firm is getting back on the recovery path. The stock surged immediately after the results and ended Thursday about 3% higher.

Overall, Q2 revenues were about 16.1% higher than a year ago, driven by steady growth in its home market and integration of the Pola Pharma Inc. business in Japan in the rest of the world business. Sun Pharma’s profit before tax increased by about 8% year-on-year (y-o-y).

Graphic by Paras Jain/Mint
Graphic by Paras Jain/Mint


The US market, however, has been seeing signs of sluggishness. Revenues from this region were flat compared with last year. Analysts have noted that headline growth has been largely in line with estimates, though US sales, excluding sales of its subsidiary Taro Pharmaceuticals, were much weaker than anticipated.

However, the product market in the US is predicted to improve in the coming quarters, but it will depend on how many new drugs the company can launch in the overseas market. The company has about 103 abbreviated new drug approvals awaiting the US FDA nod. Sun Pharma received approvals for seven ANDAs, enlarging its US pipeline to 54 approved new drug applications.

A big positive was the ramp up in its India operations due to a spate of product launches. This segment delivered the highest-ever quarterly sales growth of the last six years, rising 35% y-o-y.

“The India business was a good surprise and aided margins due to a favourable geographical mix in revenue growth. An increase in new launches and improvement in secondary sales were good signs. Overall, the margin beat was positive," said Krishnanath Munde, pharma analyst, Reliance Securities Ltd.

Research and development expenses fell as a proportion of revenue. Consolidated R&D expenses in Q2 FY20 were 488 crore, about 6.1% of revenue. This compares well with Q2 FY19’s 452 crore, which was about 6.6% of revenue. The product-mix change, though, seemed to crimp margin growth. Despite strong revenue growth of about 16%, earnings before interest, taxes, depreciation and amortization grew only 12%. Besides, expenses related to the marketing of specialty products dented the Ebitda margin. However, the Ebitda margin was a touch higher than analysts estimated, which seems to have had a positive effect on the stock.

The stock trades at a one-year forward price earnings of about 20. Since the beginning of this year, the stock has been seeing signs of consolidation, yet the outlook for the US and India operations is key. Also, in the coming quarters, the Street will also be looking for a ramp up in its specialty products.

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