Sun Pharmaceutical – Healthy Prescription

Sun Pharmaceutical - Healthy Prescription

The share price of Sun Pharmaceutical Industries (Sun Pharma) has surged nearly 7-8% in the last one month.

The price gains appear more pronounced in comparison with the stock’s underperformance to benchmark mark index over the last one year. It returned -14% while Nifty rallied over 12%.

It was found that major factors caused the sudden spurt in Sun Pharma’s share price. Its strong earnings and buyback offer by Taro, which will help the drugmaker to consolidate its holding.

The latest one to add Sun Pharma’s success on the bourses is the growing expectations of an end to a legal battle in the US.

Sun Pharma through its unit Teva Pharmaceutical Industries has been talking with the US Department of Justice over the last six months regarding a resolution of a protracted criminal antitrust probe against the company and other drugmakers.

The anti-trust probe is with regard to alleged price-fixing by these companies.

Although the talks are being held with drugmakers individually, it does not guarantee the negotiations will succeed.

The timetable for reaching an accord isn’t clear.

The government could still decide to indict any of the companies, a person familiar with the talks said.

Meanwhile, the Taro Pharmaceutical Industries buyback offers could help Sun Pharma lift its holding in the company from the current 76.5%.

Taro Pharmaceutical on November 14 launched its modified Dutch auction tender offer to repurchase up to $225 million in value of its ordinary shares at a price not greater than $92 a share or less than $80/share.

The offer will expire on December 16. If the offer is fully subscribed, the number of shares to be purchased in the offer represents approximately 6.3-7.3% of Taro’s currently issued and outstanding shares depending on the purchase price payable for those shares pursuant to the offer, Taro said in the offer document

On the financial front, the largest drugmaker by sales reported a healthy performance in 2QFY20 led by strong growth in India and RoW business.

It reported a 17% increase in sales at Rs 8,100 crore. Similar growth witnessed in EBITDA at Rs 1,800 crore.

Adjusted PAT grew by 13% on year to Rs 1,100 crore. The EBITDA margin remained flat on a yearly basis at 22%.
India business (+35% on the year) delivered the highest ever quarterly sales in the last six years.

While its US business remained flat on year basis at US$339mn, it reduced US$85mn sequentially due to lack of any one-time supply opportunity unlike 1QFY20 and weak on quarter performance in the generic product portfolio.

Notably, positive biz mix and operating leverage led to a better-than-expected EBITDA margin.

Interestingly, Sun Pharma’s ex-Taro (adjusted to one-off supply opportunity) US sales declined by 2% to US$189mn, while Taro remained flat at US$150mn on a quarterly basis.

Cumulative pending ANDAs filing reduced to 103 (excluding 5 NDAs). Total approved ANDAs stood at 575. During 2QFY20, Sun Pharma has filed 2 ANDAs and received approval for 7 ANDAs.