Acquisition brightens Sun Pharma's glow

Last Updated: Thu, Nov 08, 2012 19:30 hrs

Sun Pharma results for the September quarter failed to cheer investors with net profits at Rs 319.64 crore declining 46 per cent over the same quarter last year. The stock, after dipping to Rs 690 levels post declaration of results, closed at Rs 696.15 on Thursday. The decline in net profit was on account of a Rs 584 crore provision made towards Protonix infringement case, but for this profit would actually have grown by 51.16 per cent year-on-year.

More than the results, market will be looking at the announcement the company made post closing of trading hours. Sun Pharma announced an acquisition of DUSA Pharmaceuticals Inc for a consideration of around $230 million (about Rs 1,250 crore).

The NASDAQ-listed company has a range of products in the dermatology segment. It has products for treatment of non-hyperkeratotic actinic keratoses or AKs of the face or scalp, and its BLU-U® treatment has been approved by FDA for the treatment of moderate inflammatory acne vulgaris and general dermatological conditions. “DUSA’s business brings us an entry into dermatological treatment devices, where we see good growth opportunities” said Dilip Shanghvi, managing director at Sun Pharma.

Deepak Malik at Emkay Global said that with this acquisition Sun seems to be consolidating its Dermatology basket in the US as Taro too has a strong dermatology range.

As for its results, the company posted sales of Rs 2,657 crore, a growth of 40 per cent over last year. Sequentially however, the numbers seem to be flat on account of lower sales growth from Taro, due to its high base, says Monica Joshi of Avendus Securities.

On the operating parameters, the company posted an Ebitda of 44.11 per cent, a growth of 267 basis points, which was on account of Taro which enjoyed an operating margin of 51 per cent, and supply of Lipidox used for cancer treatment to the US. Sun had been shortlisted by USFDA to supply the drug (Lipidox) for some time given the shortage due to manufacturing issues with Johnson & Johnson (J&J). Contribution of this product is expected to taper following resumption of supplies by J&J.

Sun Pharma’s sales got a boost from US finished dosage sales which grew by 66 per cent in rupee terms to Rs 1,330 crore from Rs 7,99 crore. This division now accounts for 49 per cent of the total sales as compared to 41 per cent last year.

Branded generic sales in India at Rs 810 crore during the September quarter marked a 15 per cent increase over September 2011 quarter. Domestic sales are likely to see stronger growth in the second half of FY13 as the first quarter posted a negative growth which resulted in first half posting a modest four per cent growth.

Excluding Taro sales the Sun’s US revenues increased strong 34 per cent in dollar terms. Contribution from Taro is expected to taper off due to high base affect. Profitability in the near term will remain strong due to price hikes taken in some products.

Hitesh Mahada at Fortune Capital says that the company in the near term will be able sustain price hikes for the products in absence of any fresh filings. But, with competition coming in margins can come under pressure, going ahead.

Though contribution from Taro will be affected, Sun Pharma will be getting a boost from DUSA acquisition and resolution of cGMP issues related to Caraco Pharma. The company has a strong product pipeline which can be demonstrated from 136 pending ANDAs, including 17 tentative approvals. ANDAs for three products received approvals in the second quarter.

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