Sun Pharma 4Q FY 2013

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Please refer to important disclosures at the end of this report 1

(` cr) 4QFY2013 3QFY2012 % chg qoq 4QFY2012 % chg yoyNet sales 3,071 2,852 7.7 2,330 31.8Other income 117 81 44.3 218 (46.2)

Gross profit 2,542 2,293 10.9 1,839 38.2

Operating profit 1,260 1,261 (0.1) 956 31.7

Net profit 1,012 881 14.8 820 23.3Source: Company, Angel Research

Sun Pharmaceutical Industries (Sun Pharma) reported more or less in line set ofresults during 4QFY2013, especially on the net profit front. The net sales and

profit came in at `3,071cr and `1,012cr vs our expectation of `2,800cr and

`997cr, respectively. Its net sales reported a 31.8% yoy growth. The OPM also

came in at 41.0% vs 41.1% during the last corresponding period. For FY2014,

the company has given a guidance of 18-20% on the top-line front. However,

on account of the stocks rich valuation, we recommend a Neutral ratingon the stock.In line results: For 4QFY2013, Sun Pharma reported net sales of`3,071cr, up31.8% yoy, mainly driven by exports. The companys OPM remained stable at

41.0% in 4QFY2013 from 41.1% in 4QFY2012. Also, the gross margin came in

at 82.8% from 78.9% in 4QFY2012. The net profit during the quarter reported a

23.3% yoy growth to`1,012cr, mostly in line with expectations of 997cr.

Outlook and valuation: Sun Pharma is one of the largest and fastest growingIndian pharmaceutical companies. We expect its net sales to post a 12.1% CAGR

over FY2012-15 to`15,846cr. However, on account of moderation in OPM, we

expect a flat EPS of `39.8 over FY201315. On account of rich valuations, werecommend a Neutral stance on the stock.Key financials (Consolidated)Y/E March (` cr) FY2012 FY2013 FY2014E FY2015ENet sales 8,006 11,239 13,509 15,846% chg 40.2 40.9 20.1 17.2

Adj. Net profit 2,457 3,480 3,423 4,122% chg 38.3 41.7 (1.7) 20.4

EPS (`) 23.7 33.6 33.0 39.8EBITDA margin (%) 40.6 43.7 41.0 41.0

P/E (x) 45.2 31.9 32.5 27.0

RoE (%) 22.7 26.5 22.0 22.0

RoCE (%) 25.1 31.2 29.7 29.4

P/BV (x) 9.1 7.9 6.5 5.4EV/Sales (x) 13.5 9.0 7.3 6.0

EV/EBITDA (x) 33.2 20.7 17.9 14.6

Source: Company, Angel Research

NEUTRALCMP `1,073

Target Price -

Investment Period -

Stock Info

Sector

(5,477)

Bloomberg Code SUNP@IN

Shareholding Pattern (%)

Promoters 63.7

MF / Banks / Indian Fls 8.3

FII / NRIs / OCBs 22.7Indian Public / Others 5.3

Abs. (%) 3m 1yr 3yr

Sensex 7.2 23.9 19.9

Sun Pharma 33.7 84.6 228.7

Pharmaceutical

Avg. Daily Volume

Market Cap (`cr)

Beta

52 Week High / Low

111,094

0.5

1,085/554

65,601

Net Debt (`cr)

Face Value (`)

BSE Sensex

Nifty

Reuters Code

1

20,215

6,124

SUN.BO

Sarabjit Kour Nangra+91 22 39357600 Ext: 6806

[email protected]

Sun PharmaPerformance Highlights

4QFY2013 Result Update | Pharmaceutical

May 30, 2013

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Sun Pharma | 4QFY2013 Result Update

May 30, 2013 2

Exhibit 1:4QFY2013 performance (Consolidated)Y/E March (` cr) 4QFY2013 3QFY2013 % chg qoq 4QFY2012 % chg yoy FY2013 FY2012 % chgNet sales 3,071 2,852 7.7 2,330 31.8 11,239 8,006 40.4Other income 117.4 81.3 44.3 218.1 (46.2) 372.7 192.1 94.0Total income 3,189 2,933 8.7 2,548 25.1 11,612 8,198 41.6Gross profit 2,542 2,293 10.9 1,839 38.2 9,159 6,364 43.9Gross margin (%) 82.8 80.4 78.9 81.5 79.5Operating profit 1,260 1,261 (0.1) 956 31.7 4,906 3,251 50.9Operating margin (%) 41.0 44.2 41.1 43.7 40.6Interest 7 (12) - 11 (36.2) 44 28 57.2

Depreciation 89 84 5.1 82 7.9 336 291 15.5

Extraordinary item loss/ ( gain) 0 0 0 584 (232)

PBT 1,281 1,270 0.9 1,081 18.5 4,898 3,123 56.8Provision for taxation 177 237 (25.1) 177 0.3 821 313 162.0

PAT before extra-ordinary item 1,104 1,033 6.8 904 22.1 4,078 2,810 45.1Minority interest(MI) 93 152 (39.2) 84 10 486 385 26.1

Adj. PAT 1,012 881 14.8 820 23.3 3,481 2,457 41.7Reported PAT 1,012 881 14.8 820 23.3 3,008 2,657 13.2EPS (`) 9.8 8.5 7.9 33.6 23.7


Exhibit 2:4QFY2013 Actual vs Angel estimates

(` cr) Actual Estimates Variance (%)Net sales 3,071 2,800 9.7Other income 117 218 (46.2)

Operating profit 1,260 1,201 4.9

Tax 177 393 (54.9)

Adj. Net profit 1,012 997 1.5Source: Company, Angel Research

Higher-than-expected top-line performance: For 4QFY2013, Sun Pharma reportednet sales of`3,071cr, up 31.8% yoy, mainly driven by exports.

The growth in the top-line was mainly driven by US formulations, which grew by

63% yoy during the period to close the quarter at US$330mn, accounting for 57%

of the overall sales. Taro on the other hand clocked sales of US$165mn,

registering a growth of 14% yoy. ROW, also posted a healthy growth of 13% yoy to

end the period at US$73mn.

During the quarter, the URL acquisition achieved financial closure. The non-

Colcrys (Colchicine, USP) generic assets of URL Pharma are now owned and

managed by Sun Pharma. With a portfolio of 107 products represented by over

230 ANDAs, it expands Sun Pharmas US portfolio.

Overall, exports sales of finished dosage products stood at `2,181cr in

4QFY2013, accounting for 70% of total sales.

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On the regulatory front, abbreviated new drug applications (ANDAs) for 9

products were filed during the quarter. With these, ANDAs for 449 products

cumulatively have been filed by Sun Pharma and Taro with the USFDA. ANDAs for

9 products received approval in 4QFY2013. Currently, ANDAs for 138 productsawait USFDA approval, including 17 tentative approvals.

Exhibit 3:Sales trend

877

588

810 788 780

1,487

1,908 1,891

2,103

2,339

0

300

600

900

1,200

1,500

1,800

2,100

2,400

2,700

4QFY2012 1QFY2013 2QFY2013 3QFY2013 4QFY2013

Domestic Formulation Export Formulation, Bulk and others

(`

cr)


OPM at 41.0%: The companys OPM remained stable at 41.0% in 4QFY2013from 41.1% in 4QFY2012. Also, the gross margin came in at 82.8% from 78.9%

in 4QFY2012.

Exhibit 4:OPM trend (%)

41.1

45.844.2 44.2

41.0

30.0

35.0

40.0

45.0

50.0


(%)


Adj. net profit came in line with expectations: The net profit during the quarterreported a 23.3% yoy growth to `1,012cr, mostly in line with expectations of

`997cr.

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xhibit 5:Adjusted Net profit trend

668

796711

881

1,012

0

100

200

300

400

500

600

700

800900

1,000

1,100


(`cr)


Concall takeaways

For FY2014, the Management has guided for an 18-20% sales growth.

During 4QFY2013, the company recorded URLs 2 months sales and DUSAs

3 months sales.

DUSA and URL businesses contributed US$30mn sales in 4QFY2014.

R&D expenses for FY2014 are expected to be 6-8% of sales.

The domestic business grew by 16% yoy, adjusted for a one-off sale in the

same quarter last year.

Tax rate of 18-20% of PBT for FY2014.

Capex for FY2014 guided for`800cr.

Investment arguments

Strongest ANDA pipeline: Sun Pharma, with the acquisitions of DUSA and URL,now has become strong in the US region, with US now accounting for 58% of its

FY2013 sales. In terms of ANDAs, the company cumulatively has 449 products. As

of March 31, 2013, the cumulative approvals stood at 311 while ANDAs for 138

products now await USFDA approval, including 17 tentative approvals. Thus,going forward, the US would continue to post a robust growth. We expect the

region to post a CAGR of 18.2% during FY2012-15E, contributing 58% of the

overall formulation sales of the company in FY2015.

Domestic business: Sun Pharmas domestic formulation business is one of thefastest growing companies in the Indian pharmaceutical Industry. It contributed

28% to the companys total turnover in FY2013. Sun Pharma is ranked third and

holds a market share of 4.9% in domestic formulation market, with exposure to

psychiatry, neurology, CVS, diabetic and gastroenterology segments. In FY2013,

Sun Pharma launched 25 products in the domestic market.

Healthy balance sheet: Sun Pharma has one of the strongest balance sheets in thesector, with cash of ~`5,000cr. The same can continue to support the

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Management in inorganic growth and in scouting for acquisitions, especially in the

US and the emerging markets.

Outlook and valuation: Sun Pharma is one of the largest and fastest growingIndian pharmaceutical companies. We expect its net sales to post a 12.1% CAGR

to`15,846cr. However, on account of moderation, we expect a flat EPS of `39.8

over FY201315. On account of rich valuations, we recommend a Neutral stanceon the stock.Exhibit 6:Key assumptions

FY2014E FY2015ENet sales growth (%) 20.1 17.2

Growth in employee expenses (%) 20.2 17.3

Operating margins (%) 41.0 41.0

Capex (`cr) 800 800


Exhibit 7:One-year forward PE band

-

200

400

600

800

1,000

1,200

Apr-05

Jul-05

Oct-05

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Jul-09

Oct-09

Jan-10

Apr-10

Jul-10

Oct-10

Jan-11

Apr-11

Jul-11

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

Jan-13

Apr-13

10 15x 20x 25x


Exhibit 8:Recommendation Summary

Company Reco CMP Tgt. price Upside FY2015E FY12-15E FY2015E(`) (`) % PE (x) EV/Sales (x) EV/EBITDA (x) CAGR in EPS (%) RoCE (%) RoE (%)

Alembic Pharma. Neutral 134 - - 9.7 1.3 6.6 26.1 34.0 34.7

Aurobindo Pharma Buy 177 264 49.0 9.2 1.1 7.0 58.2 12.0 18.0

Cadila Healthcare Buy 775 962 24.1 16.1 2.0 11.1 14.8 18.5 24.7

Cipla Buy 383 444 15.8 17.3 2.8 12.7 1.4 15.7 15.9

Dr Reddy's Buy 2,105 2,535 20.4 16.6 2.4 12.1 10.8 18.3 21.8

Dishman Pharma Buy 75 206 174.7 3.4 0.8 3.9 47.9 12.0 13.7

GSK Pharma* Neutral 2,300 - - 27.6 5.3 18.7 4.8 36.1 31.0

Indoco Remedies Buy 63 78 23.8 8.1 0.8 5.4 15.8 15.3 14.7

Ipca labs Accumulate 599 676 12.8 13.3 1.9 9.0 30.6 26.0 25.3

Lupin Accumulate 768 877 14.2 18.4 2.4 11.3 29.1 28.5 24.8

Ranbaxy* Neutral 382 - - 17.0 1.1 8.8 (6.8) 13.1 19.1Sanofi India* Neutral 2,610 - - 26.3 2.6 15.8 13.4 15.9 16.7Sun Pharma Neutral 1073 - - 27.0 6.0 14.6 15.8 29.4 22.0

Source: Company, Angel Research; Note: *December year ending

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Company background

Sun Pharma is an international specialty pharma company, with a large presence

in the US and India, and a footprint across 40 other markets. In India and rest of

the world markets, the key chronic therapy areas for the company are cardiology,

psychiatry, neurology, gastroenterology, diabetology etc. The company is a market

leader in specialty therapy areas in India. In India, the company has emerged as a

leading pharma company where it is the third largest player. Also, in the US, a key

geography, the company has expanded significantly through both in-organic and

organic routes.

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Profit & Loss statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015EGross sales 3,981 5,807 8,127 11,389 13,690 16,059Less: Excise duty 27 85 107 151 181 212Net sales 4,007 5,721 8,006 11,239 13,509 15,846Other operating income 237 - 14 61 61 61Total operating income 4,244 5,721 8,020 11,300 13,570 15,907% chg (0.8) 34.8 40.2 40.9 20.1 17.2

Total expenditure 2,644 3,754 4,755 6,333 7,973 9,352

Net raw materials 1,098 1,461 1,641 2,080 2,567 3,011

Other mfg costs 221 314 350 491 590 692

Personnel 401 800 1,188 1,535 1,844 2,163

Other 925 1,494 1,576 2,811 2,972 3,486

EBITDA 1,363 1,967 3,251 4,906 5,536 6,494% chg (26.9) 44.3 65.2 50.9 12.8 17.3

(% of Net Sales) 34.0 34.4 40.6 43.7 41.0 41.0

Depreciation & amort. 153 204 291 336 398 438

EBIT 1,210 1,763 2,974 4,570 5,138 6,056% chg (30.5) 45.7 68.7 53.7 12.4 17.9

(% of Net Sales) 30.2 30.8 37.1 40.7 38.0 38.2

Interest & other charges 28 44 44 44

Other income 205 273 178 312 312 312

(% of PBT) 14.5 13.4 5.7 6.4 6.5 5.4

Share in profit of Asso. - - - -

Recurring PBT 1,415 2,036 3,123 4,898 4,826 5,744% chg (27.4) 43.9 53.4 56.8 (1.5) 19.0

Extraordinary expense/(inc.) (1.3) (41.6) (232) 584 - -

PBT (reported) 1,415 2,036 3,123 4,898 4,826 5,744Tax 67.9 128.4 313.2 820.6 868.7 1,033.9

(% of PBT) 4.8 6.3 10.0 16.8 18.0 18.0

PAT (reported) 1,347 1,907 2,810 4,078 3,957 4,710Add: Share of earnings of asso. - - - -

Less: Minority interest (MI) (4) 91 385 486 535 588

Prior period items - - - -

PAT after MI (reported) 1,351 1,816 2,657 3,008 3,423 4,122ADJ. PAT 1,350 1,777 2,457 3,480 3,423 4,122% chg (24.7) 31.7 38.3 41.7 (1.7) 20.4

(% of Net Sales) 33.7 31.7 33.2 26.8 25.3 26.0

Basic EPS (`) 13.0 17.5 23.7 33.6 33.0 39.8Fully Diluted EPS ( ) 13.0 17.5 23.7 33.6 33.0 39.8% chg (25.7) 34.4 35.3 41.7 (1.7) 20.4

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Balance Sheet (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015ESOURCES OF FUNDSEquity share capital 104 104 104 104 104 104

Preference capital - - - -

Reserves & surplus 7,725 9,380 12,063 14,041 16,858 20,374

Shareholders funds 7,829 9,483 12,166 14,145 16,961 20,477Minority interest 193 847 1,161 1,635 2,170 2,758Total loans 171 426 321 198 198 198

Deferred tax liability (89) (365) (520) (711) (711) (711)

Other Long Term Liabilities 7 9 9 9 9

Long Term Provisions 13 139 787 787 787

Total liabilities 8,104 10,411 13,276 16,063 18,515 22,619APPLICATION OF FUNDSGross block 2,334 4,547 5,427 7,566 8,366 9,166

Less: Acc. depreciation 801 2,026 2,497 2,833 3,232 3,670

Net block 1,533 2,521 2,930 4,732 5,134 5,496Capital work-in-progress 145 235 345 345 345 345

Goodwill 406 772 1,022 1,133 1,133 1,133

Investments 3,066 2,230 2,213 2,412 2,412 2,412Long term long & adv. 379 534 1,009 1,212 1,421Current assets 3,712 5,736 8,534 9,634 12,128 16,327

Cash 607 2,205 3,367 4,059 5,426 8,466Loans & advances 856 910 1,137 1,080 1,298 1,522

Other 2,249 2,651 4,031 4,496 5,404 6,339Current liabilities 758 1,463 2,301 3,202 3,849 4,515

Net current assets 2,954 4,273 6,234 6,432 8,279 11,813Others - - - - - -

Total assets 8,104 10,411 13,276 16,063 18,515 22,619

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Cash Flow Statement (Consolidated)

Y/E March (` cr) FY2010 FY2011 FY2012 FY2013 FY2014E FY2015EProfit before tax 1,415 2,036 3,123 4,900 4,826 5,744

Depreciation 153 204 291 336 398 438

(Inc)/Dec in working capital (467) (131) (923) 18 (682) (703)

Direct taxes paid 162 87 466 821 869 1,034

Cash Flow from Operations 938 2,022 2,026 4,434 3,673 4,445(Inc.)/Dec.in Fixed Assets (174) (2,304) (989) (2,139) (800) (800)

(Inc.)/Dec. in Investments (1,207) 837 17 (199) - -

Other income - - - - - -

Cash Flow from Investing (1,381) (1,467) (972) (2,338) (800) (800)Issue of Equity - - - - - -

Inc./(Dec.) in loans 8 (235) 233 771 (0) -

Dividend Paid (Incl. Tax) (333) (344) (424) (606) (606) (606)

Others (294) 1,620 300 (1,569) (901) 1

Cash Flow from Financing (619) 1,042 109 (1,404) (1,507) (605)Inc./(Dec.) in Cash (1,062) 1,597 1,163 692 1,367 3,040

Opening Cash balances 1,669 607 2,205 3,367 4,059 5,426Closing Cash balances 607 2,205 3,367 4,059 5,426 8,466

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Key Ratios

Y/E March FY2010 FY2011 FY2012 FY2013 FY2014E FY2015EValuation Ratio (x)P/E (on FDEPS) 82.2 61.2 41.8 26.6 32.5 27.0P/CEPS 73.8 55.0 40.9 28.3 29.1 24.4

P/BV 14.2 11.7 9.1 7.9 6.5 5.4

Dividend yield (%) 1.3 0.3 0.4 0.5 0.5 0.5

EV/Sales 27.6 19.1 13.5 9.0 7.3 6.0

EV/EBITDA 81.2 55.6 33.2 20.7 17.9 14.6

EV / Total Assets 13.7 10.5 8.1 6.3 5.4 4.2

Per Share Data (`)EPS (Basic) 13.0 17.5 25.7 40.3 33.0 39.8

EPS (fully diluted) 13.0 17.5 25.7 40.3 33.0 39.8

Cash EPS 14.5 19.5 26.2 37.9 36.9 44.0

DPS 13.8 3.5 4.3 5.0 5.0 5.0

Book Value 75.6 91.6 117.5 136.6 163.8 197.7

Dupont AnalysisEBIT margin 30.2 30.8 37.1 40.7 38.0 38.2

Tax retention ratio 95.2 93.7 90.0 83.3 82.0 82.0

Asset turnover (x) 0.6 0.7 0.9 1.0 1.1 1.2

ROIC (Post-tax) 18.5 21.0 29.6 34.9 33.7 36.6

Cost of Debt (Post Tax) 0.0 0.0 6.8 14.2 18.3 18.3

Leverage (x) -0.1 0.0 0.0 0.0 0.0 0.0

Operating ROE 16.0 21.0 29.6 34.9 33.7 36.6

Returns (%)ROCE (Pre-tax) 15.7 19.0 25.1 31.2 29.7 29.4

Angel ROIC (Pre-tax) 19.9 24.9 37.8 48.0 46.4 49.9

ROE 18.2 20.5 24.5 31.8 22.0 22.0

Turnover ratios (x)Asset Turnover (Gross Block) 1.9 1.7 1.6 1.7 1.7 1.8

Inventory / Sales (days) 88 81 81 81 85 97

Receivables (days) 88 75 69 65 69 79

Payables (days) 34 47 57 64 62 62

WC cycle (ex-cash) (days) 182 141 112 85 70 71

Solvency ratios (x)Net debt to equity (0.1) (0.2) (0.3) (0.3) (0.3) (0.4)

Net debt to EBITDA (0.3) (0.9) (0.9) (0.8) (0.9) (1.3)

Interest Coverage (EBIT/Int.) - - - - - -

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May 30 2013 11

Research Team Tel: 022 - 3935 7800 E-mail: [email protected] Website: www.angelbroking.com

DISCLAIMERThis document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investmentdecision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make

such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies

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risks of such an investment.

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trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's

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Disclosure of Interest Statement Sun Pharma

1. Analyst ownership of the stock No

2. Angel and its Group companies ownership of the stock No

3. Angel and its Group companies' Directors ownership of the stock No

4. Broking relationship with company covered No

Note: We have not considered any Exposure below `1 lakh for Angel, its Group companies and Directors.

Ratings (Returns): Buy (> 15%) Accumulate (5% to 15%) Neutral (-5 to 5%)Reduce (-5% to -15%) Sell (< -15%)

Documents

Sun Pharma 4Q FY 2013