Dolat Capital Market has given Buy recommendation for Sun Pharmaceutical with a target price of Rs. 786 in its research report issued on May 28, 2021

Dolat Capital Market’s research report on Sun Pharmaceutical

Sun missed our estimate on the top-line with sales in Q4 at Rs84bn (up 4% YoY) primarily due to lower US sales at US$370mn (down US$5mn QoQ). India growth was robust at 13% YoY. Controlled spend aided EBITDA margins at 24.2%. Debt reduction of $580mn in FY21 led to lower interest outgo. One-time provision of US$80mn (w.r.t Taro’s anti-trust cases in the US), led to recognition of higher deferred tax. Adjusting for the one-off, PAT came in at Rs14.5bn (we saw Rs14.2bn). Management refrained from any guidance for FY22E citing COVID related uncertainties; Q1 to witness high growth led by India sales and lower SGA expenses (aided by COVID). With current US generic portfolio not firing, Sun announced its plans to enter US biosimilar segment. Sketchy details indicate that Sun might look for partners, in-licensing strategy to enter this segment. Nonetheless, launches are scheduled in FY28/30.

Outlook

Sun’s valuation, at 22.6x FY23E earnings, does not justify its visibility for specialty-business-driven growth and steady outlook on its India and ROW formulations, in our view. Risk reward is favorable given the strong FCF generation over FY20-23E and OCF/EBITDA at ~77%. Our SOTP based TP of Rs786 values Sun at 25x FY23E.