Sun Pharmaceutical Industries Ltd. - Moneycontrol

Sun Pharmaceutical Industries Ltd.

RESULT UPDATE UPDATE RESULT

29th May, 2018 22nd May 2017

India Equity Institutional Research II

II 29th May, 2018

Result Update – Q4FY18

Page 2

Sun Pharmaceutical Industries Ltd.

Speciality pipeline to drive growth...

CMP

Target

Potential Upside

Market Cap (INR Mn)

Recommendation

Sector

INR 498

INR 539

8%

1,198,942

ACCUMULATE

Pharma

Result highlights •Net Sales stood at INR 67,110 Mn which was down by 1.7% y-o-y but was marginally up by 1.7% q-o-q, the improvement in revenues was due to increase in sales of US markets which grew 11% in the quarter. •EBIDTA stood at INR 16,836 Mn which degrew 22.7% y-o-y but grew 15.8% q-o-q. Reduction in COGS and employee expenses led to improved profitability of the business. The company has reported margins of 19.4% in Q4FY18 against margins of 21.84% in Q3FY18 which has improved by 229 bps q-o-q •The company has reported profit of INR 13,557 Mn against the profit of INR 3,635 Mn in Q3FY18.PAT Margin for the quarter stood at 19.43% down by 1234 bps y-o-y but was up by 1397 bps q-o-q. The last quarter had one time tax impact of INR 5131 Mn. Excluding that tax impact, the PAT margins stood at 13.2% in Q3FY18. So, improvement of 620 bps in PAT margins was seen MARKET DATA

KEY FINANCIALS

Shares outs (Mn)

2399

EquityCap (INR Mn)

2399

Mkt Cap (INR Mn)

1198942

52 Wk H/L (INR)

609/433

Volume Avg (3m K)

5303.1

Face Value (INR)

1

Bloomberg Code

SUNP IN

FY16 2,78,881 81,584 45,458 23.5 51.1 14.7 19.1

Particulars (INR Mn) Revenues EBITDA Net Income EPS P/E (x) EV/EBITDA (x) RoCE (%)

FY17 3,02,643 1,00,893 69,644 32.7 15.3 13.9 17.2

FY18 2,60,659 56,081 21,616 11.0 44.6 21.3 7.6

FY19E 2,98,579 73,749 44,140 20.3 24.2 16.0 9.03

FY20E 3,30,003 86,973 54,325 24.5 20.0 13.2 10.03

Source: Company, KRChoksey Research

Muted results for the quarter: The largest Pharma company of India has delivered muted results with a de-growth of 14% Y-o-Y due to high base business in FY17 which had higher revenues from its gGleevec and continuous price erosion in the base business. The company is transitioning from the generic player to a speciality one and has 3 major drugs in its pipeline namely tildrakizumab ,OTX 101 and a newly approved oncology drug “Yonsa”. But this would take 2-3 years time to ramp up and contribute significant to sales. We expect that going forward the US revenues may see some stability due to new product launches and improvement in US business.

SHARE PRICE PERFORMANCE

130

100

North America’s business witnessed growing trend: The North America’s business has witnessed growing trend with sales at INR 23,716 Mn in Q4FY18, a growth of 11.6% Q-o-Q but a degrowth of 7.2% Y-o-Y. This was mainly due to higher revenues from Odomzo and improvement in US business of Taro and recovery in company’s US base business. The Halol plant issue is not yet resolved which has led to less approvals and launches in the quarter.

70

SunPharma Inds

Business in RoW and emerging markets has registered growth: In emerging markets the company recorded sales of INR 12,794 Mn which grew 5.5% Y-o-Y mainly due to consolidation of the Biosintez acquisition in Russia. The RoW markets have registered growth of 1.5 Y-o-Y with sales at INR 7,437Mn. The growth was partly boosted by the consolidation of revenues from the acquisition of 14 brands such from Novartis. Going ahead, we believe that these markets will grow strongly and will help to aid the business leading to long term profitability of the firm.

May-18

Nov-17

May-17

Nov-16

May-16

Nov-15

May-15

40

Sensex

Domestic business saw decline: Sale of branded formulations in India for Q4FY18 was INR 19,626 Mn, up 2.4% Y-o-Y and accounting for 29% of total sales. However, the sales in the quarter has witnessed a degrowth of 5.9% which was mainly due to seasonal mix and GST effects. We expect that going ahead the company will deliver robust growth in the domestic business due to new product launches and strong recovery post GST.

MARKET INFO SENSEX

35165

NIFTY

10689

SHARE HOLDING PATTERN (%) Particulars

Mar 18

Dec 17

Sep 17

Promoters

54.38

54.38

54.38

FIIs

16.32

17.2

18.17

DIIs

16.23

14.91

13.88

Others

13.08

13.51

13.57

100

100

100

Total ANALYST

Dhavan Shah, [email protected], +91-22-6696 5585 Dhara Patwa, [email protected], +91-22-6696 5585

422 ANDA’S Approved

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

139 Pending ANDA approvals

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com

India Equity Institutional Research II

Result Update – Q4FY18

II 29th May, 2018

Page 3

Sun Pharmaceutical Industries Ltd. Valuations & Views: We believe that the growth momentum for the company will pick-up post FY19 on the back of improved profitability from the in-licensed drugs such as Odomzo which has a potential to generate USD 150-200 mn revenues at its peak sales. The company has also received approval for gGlumetza and will be commercializing it in US soon. Improvement in Taro’s US business along with the Rampup in non US markets such Europe, emerging markets and India business will help to sustain the margins. The company’s Halol plant is awaiting clearance approval by USFDA and the management guided the resolution of same in H2FY19. Going ahead, we believe the topline to deliver a Y-o-Y grow by 15 % with sales at INR 2,98,579 mn in FY19 and EBITDA at INR 73,749 with margins at 24.7%. At CMP of INR 498 the stock is trading at PE of 20.3x at FY20E with EPS of INR 24.52. We recommend “ACCUMULATE” rating on the stock and value the stock at 22x FY20E EPS of INR 24.5 with a target price of INR 539 indicating 8% upside from CMP.

ANALYST Dhavan Shah, [email protected], +91-22-6696 5585 Dhara Patwa, [email protected], +91-22-6696 5585

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com

India Equity Institutional Research II

Result Update – Q4FY18

II 29th May, 2018

Page 4

Sun Pharmaceutical Industries Ltd. Q4FY18 Result Snapshot Exhibit 1: Consolidated Result Update (INR Mn) INR mn Net sales Other operating income Total operating income Total Expenditure Cost of Raw Materials (Increase) / Decrease In Stocks Purchase of Finished Goods Employee Cost Other expenses EBITDA EBITDA Margins (%) Depreciation EBIT & Exceptional Item Other Income EBIT Interest EBT Exceptional items Profit before exceptional items Tax Net Profit from ordinary activity after tax Share of profit after tax of associate PAT PAT Margin (%) EPS

Q4FY18 65,982.1 550.2 66,532.3 47,268.8 8,058.9 2,866.7 10,071.6 13,726.3 12,545.3 19,263.5 28.95% 3,393 15,870 1,292 17,162 953 16,209 0 16,209 7,487 8,722 357 8,365 12.57% 1.5

Q3FY18 68,251.6 3,118.0 71,369.6 49,594.8 18,427.5 -2,858.8 6,383.4 12,487.7 15,155.0 21,774.8 30.51% 450 21,325 2,245 23,570 450 23,120 0 23,120 443 22,677 0 22,677 31.77% 5.2

Q4FY17 1.7% 383.6% 4.9% -3.7% 39.0% -193.3% -8.9% -2.3% 14.7% 26.0% 582bps 34.2% 24.2% 134.3% 32.5% 63.0% 30.7%

QoQ (%) -1.7% -14.7% -2.2% -8.2% -39.2% -6.4% 43.8% 7.4% -5.0% 11.4% 427bps 911.9% -7.6% 34.9% -3.5% 245.4% -8.4%

30.7% -123.6% 163.2% 450.5% 150.9% 1751bps 266.7%

-8.4% -498.8% 1.2% -7.5% -170bps 5.8%

YoY (%) 65,982.1 550.2 66,532.3 47,268.8 8,058.9 2,866.7 10,071.6 13,726.3 12,545.3 19,263.5 28.95% 3,393 15,870 1,292 17,162 953 16,209 0 16,209 7,487 8,722 357 8,365 12.57% 1.5

Source: Company, KRChoksey Research

Key Con-call Highlights: •The company’s halol plant is currently undergoing USFDA inspection and the management seek resolution of the same in H2FY19. •Sunpharma has reduced Co-pay in Absorica which may lead to low prescriptions base going ahead. But the company guided to improve the profitability they would adopt this strategy. The company will focus on “low prescriptions and high profit strategy”. •The management guided that they would drop certain filings which are more competitive and will revise the number of filings. They would rationalise the portfolio for optimum utilisation of R&D expenses. •The reduction in filings will lead to lower R&D cost •The company has started marketing Odomzo in US and has also received a new approval for the same. •Going forward in FY19 it is looking to launch 3 speciality generic product like Yonsa (Q1FY19), Tildrakizumab (IL-23) (in Q2FY19) and OTX-101 (possibly H2FY19)

ANALYST Dhavan Shah, [email protected], +91-22-6696 5585 Dhara Patwa, [email protected], +91-22-6696 5585

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com

India Equity Institutional Research II

Result Update – Q4FY18

II 29th May, 2018

Page 5

Sun Pharmaceutical Industries Ltd. KEY FINANCIALS Exhibit 2: Income Statement INR Mn Net Sales Other Operating Income Operating Expenses EBITDA Depreciation Other Income EBIT Interest Paid Pre-Tax Profit Non-Recurring Items Pre-Tax Profit Tax (current + deferred) Net Profit Minority Interests Share of associates Net Income

FY16 2,78,881 5,990 2,03,287 81,584 10,375 6,583 77,791 5,232 72,559 -6,852 79,410 9,138 70,273 -11,126 15 59,161

FY17 3,02,643 13,142 2,14,892 1,00,893 12,648 6,232 94,477 3,998 90,479 0 90,479 12,116 78,364 -8,819 99 69,644

FY18 2,60,659 4,235 2,08,813 56,081 14,998 8,388 49,471 5,176 44,295 -9,505 34,790 8,452 26,338 -4,468 -254 21,616

FY19E 2,98,579 2,986 2,27,815 73,749 15,899 6,929 64,779 4,739 60,040 0 60,040 11,408 48,632 -4,472 -20 44,140

FY20E 3,39,737 3,397 2,56,162 86,973 16,919 7,068 77,121 4,499 72,622 0 72,622 13,798 58,824 -4,477 -22 54,325

FY16

FY17

FY18

FY19E

FY20E

Source: Company, KRChoksey Research

Exhibit 3 : Balance Sheet INR Mn Equity Share Capital

2,407

2,399

2,399

2,399

2,399

Reserves & Surplus

3,27,418

3,63,997

3,78,606

4,19,518

4,69,004

Total Shareholders Fund

3,29,825

3,66,397

3,81,006

4,21,917

4,71,403

40,853

37,909

38,842

38,842

38,842

Long Term Borrowings

32,906

31,769

17,721

18,318

18,946

Deferred Tax Liabilities

1,028

3,148

2,190

2,190

2,190

Other LT Liabilties & Provisions

21,055

13,418

4,627

5,043

5,500

Short-term Borrowings

52,061

66,549

79,797

80,412

81,033

Trade Payables

35,829

43,954

47,662

45,278

50,262

Minority Interest Non- current liabilties

Current Liabilities

Other Current Liabilities & Provisions Total Liabilities

41,746

50,959

71,184

72,070

72,969

5,55,302

6,14,102

6,43,028

6,84,070

7,41,145

Non- current Assets Fixed Assets

1,24,130

1,49,403

1,57,111

1,84,901

1,84,982

Non-Current Investments

11,161

9,610

30,523

30,828

31,136

Goodwill

56,347

55,362

56,067

56,067

56,067

Other Non-Current Assets

64,252

70,190

82,968

83,327

83,690

7,138

2,309

40,906

42,952

45,099

Current assets Current Investments Trade Receivables

67,757

72,026

78,153

73,622

83,771

Inventories

64,225

68,328

68,807

69,573

76,650

Cash & Bank Balances

80,751

86,628

79,254

92,577

1,28,521

Short Term Loans & Advances

10,716

10,191

5,710

5,824

5,940

Other Current Assets

68,826

90,055

43,530

44,400

45,288

Total Assets

5,55,303

6,14,102

6,43,028

6,84,070

7,41,145

Source: Company, KRChoksey Research

ANALYST Dhavan Shah, [email protected], +91-22-6696 5585 Dhara Patwa, [email protected], +91-22-6696 5585

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com

India Equity Institutional Research II

Result Update – Q4FY18

II 29th May, 2018

Page 6

Sun Pharmaceutical Industries Ltd.. Exhibit 4: Cash flow statement INR Mn

FY16

FY17

FY18

FY19E

FY20E

PBT

65,707

90,479

34,790

60,040

72,622

Depreciation

10,375

12,648

14,998

15,899

16,919

Change in Working Capital

2,468

-4,092

45,806

1,339

-12,253

Other items

-11691

-28212

-3276

-6669

-9299

Cash flow from operations

66,859

70,823

92,318

70,610

67,989

Proceeds from sale of fixed assets

-34,035

-36,929

0

0

0

Payments for purchase of property, plant and equipment

706

1025

-23411

-43689

-17000

Other Investing Activities

-10387

-6312

-59510

-2351

-2456

Cash flow from investing

-43,716

-42,216

-82,921

-46,040

-19,456

Proceeds from borrowings

82,945

53,640

-800

1,213

1,249

Repayment of borrowings

-90,765

-45,268

0

0

0

Finance costs (includes borrowing costs capitalised)

-3014

-3338

-5176

-4739

-4499

Dividend paid

-7,217

-2,399

-5,079

-7,720

-9,338

Others

-835

-25,488

-5,514

0

0

-18,885

-22,854

-16,568

-11,247

-12,589

Cash flow from financing Net increase in cash and cash equivalents

4,258

5,753

-7,171

13,323

35,945

Opening Cash Balance Effect of exchange differences on restatement of foreign currency cash and cash equivalents Pursuant to the Scheme of Amalgamation

72,856

80,317

86,424

79,254

92,576

4,225

355

0

0

0

0

0

0

0

0

Closing Cash Balance

81,338

86,424

79,254

92,576

1,28,521

FY16 23.51 18.89 137.05 1.00

FY17 32.66 29.03 152.71 3.50

FY18 10.98 9.01 158.80 2.00

FY19E 20.27 18.40 175.85 3.04

FY20E 24.52 22.64 196.48 3.68

51.1 8.8 35.45

15.3 3.3 12.01

44.6 3.1 21.29

24.2 2.8 16.02

20.0 2.5 13.19

29.3% 20.3% 19.3% 16.7%

33.3% 25.9% 22.5% 19.5%

21.5% 10.1% 7.0% 9.2%

24.7% 16.3% 12.1% 11.9%

25.6% 17.3% 13.2% 13.0%

0.26 0.01 1.04 14 2.3

0.27 0.03 0.97 22 2.0

0.26 0.05 1.74 8 1.6

0.23 0.01 1.34 12 1.7

0.21 -0.06 1.15 16 1.9

1% 2.4% 3%

9% 23.7% 39%

-14% -44.4% -66%

15% 31.5% 85%

14% 17.9% 21%

2.11 370 89

2.11 307 87

1.33 338 109

1.45 315 90

1.56 305 90

Source: Company, KRChoksey Research

Exhibit 5: Ratio Analysis INR Mn EPS CEPS BVPS DPS Valuation (x) P/E P/BV EV/EBITDA Return ratio (%) EBIDTA Margin PAT Margin RoE RoCE Leverage Ratios (x) Long Term D/E Net Debt/Equity Debt/EBITDA Interest Coverage Current ratio Growth Ratios (%) Income growth EBITDA growth PAT growth Turnover Ratios Asset Turnover (x) Inventory Days Debtors Days Source: Company, KRChoksey Research

ANALYST Dhavan Shah, [email protected], +91-22-6696 5585 Dhara Patwa, [email protected], +91-22-6696 5585

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com

India Equity Institutional Research II

Result Update – Q4FY18

II 29th May, 2018

Page 7

Sun Pharmaceutical Industries Ltd. Sun Pharmaceutical Industries Ltd.

Rating Legend

Date

CMP (INR)

TP (INR)

Recommendation

29-May-18 15-Feb-18 15-Nov-17 14-Aug-17 15-Feb-17 11-Nov-16 16-Aug-16 01-Jun-16 15-Feb-16 12-Aug-15 21-Jul-15 8-Jul-15 30-May-15 9-April-15 16-Feb-15

498 572 513 450 623 667 797 755 847 843 805 879 966 1152 939

539 633 613 550 930 940 940 885 971 910 910 991 991 1200 991

ACCUMULATE ACCUMULATE BUY BUY BUY BUY BUY BUY BUY ACCUMULATE ACCUMULATE ACCUMULATE HOLD HOLD ACCUMULATE

Our Rating

Upside

Buy

More than 15%

Accumulate

5% - 15%

Hold

0 – 5%

Reduce

-5% – 0

Sell

Less than -5%

ANALYST CERTIFICATION: We Dhavan Shah [B.Com, MS(Finance)], research analyst and Dhara Patwa (BBA,MBA), research associate, author and the name subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my views about the subject issuer(s) or securities. I also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Terms & Conditions and other disclosures: KRChoksey Shares and Securities Pvt. Ltd (hereinafter referred to as KRCSSPL) is a registered member of National Stock Exchange of India Limited, Bombay Stock Exchange Limited and MCX Stock Exchange Limited. KRCSSPL is a registered Research Entity vides SEBI Registration No. INH000001295 under SEBI (Research Analyst) Regulations, 2014. We submit that no material disciplinary action has been taken on KRCSSPL and its associates (Group Companies) by any Regulatory Authority impacting Equity Research Analysis activities. KRCSSPL prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analyst covers. The information and opinions in this report have been prepared by KRCSSPL and are subject to change without any notice. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KRCSSPL. While we would endeavor to update the information herein on a reasonable basis, KRCSSPL is not under any obligation to update the information. Also, there may be regulatory, compliance or other reasons that may prevent KRCSSPL from doing so. Non-rated securities indicate that rating on a particular security has been suspended temporarily and such suspension is in compliance with applicable regulations and/or KRCSSPL policies, in circumstances where KRCSSPL might be acting in an advisory capacity to this company, or in certain other circumstances. This report is based on information obtained from public sources and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. 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Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Actual results may differ materially from those set forth in projections. Forward-looking statements are not predictions and may be subject to change without notice. Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein, .In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. 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It is confirmed that, Dhavan Shah [B.Com, MS(Finance)], research analyst and Dhara Patwa (BBA,MBA), research associate, of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months. Compensation of our Research Analysts is not based on any specific brokerage service transactions. KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst. It is confirmed that Dhavan Shah [B.Com, MS(Finance)], research analyst and Dhara Patwa (BBA,MBA), research associate, do not serve as an officer, director or employee of the companies mentioned in the report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other Jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject KRCSSPL and affiliates to any registration or licensing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform them of and to observe such restriction. Please send your feedback to [email protected] Visit us at www.krchoksey.com Kisan Ratilal Choksey Shares and Securities Pvt. Ltd Registered Office: 1102, Stock Exchange Tower, Dalal Street, Fort, Mumbai – 400 001. Phone: +91-22-6633 5000; Fax: +91-22-6633 8060. Corporate Office: ABHISHEK, 5th Floor, Link Road, Andheri (W), Mumbai – 400 053. Phone: +91-22-6696 5555; Fax: +91-22-6691 9576.

ANALYST Dhavan Shah, [email protected], +91-22-6696 5585 Dhara Patwa, [email protected], +91-22-6696 5585

KRChoksey Research is also available on Bloomberg KRCS Thomson Reuters, Factset and Capital IQ

+91-22-6696 5555 / +91-22-6691 9576 www.krchoksey.com