India biz bright spot for Sun Pharma in lacklustre Q4

Even as Sun Pharma’s investors were waiting for the company to deliver an encouraging performance, India’s biggest drugmaker disappointed its investors with a lower-than-expected growth in both top line and bottom line.The top line was impacted due to subdued growth in the US because of the non-recurring drug sales a year ago and the seasonality effect. In a profitable quarter with a low base effect, the company took exceptional provisions amounting to Rs 672.8 crore.This included Rs 583 crore for ongoing multi-jurisdiction civil antitrust matters and Rs 89.5 crore toward the final settlement charges concerning Ranbaxy’s case in the European Union. A non-recurring tax credit of ?121 crore marginally helped soften the impact of these provisions on the net profit.On a sequential basis, the revenues across business segments have been lower than the preceding December quarter. The operational profitability, too, suffered sequentially from the third to the fourth quarter. Marketing expenses across all markets have climbed and are likely to firm up as the normalisation of business sets in. 83024406There has been a gradual recovery in the company’s speciality business over the last fiscal year with sales for certain products such as Ilumya picking up pace over the preceding year. The US generics market, however, continued to remain competitive with Taro’s business contracting over the recent quarters. New launches, better supply chain management and better handling of drug shortages are expected to be drivers of growth in the generics business.India business, with its thrust on chronic products, has been the key growth driver for Sun Pharma for the quarter. The domestic pharma sales appeared to normalise during the fourth quarter with an increase in travel costs of the field force. There was an uptick in chronic and sub-chronic therapeutic segments, but acute portfolio sales remained modest. However, there is uncertainty again due to the second wave and lockdown in the current quarter.Investors want to see consistency in the company’s performance, but the latest quarter performance fails to provide comfort in that regard. Amidst the current uncertainty due to the second covid wave, the company has refrained from providing growth guidance for the current fiscal.On a longer-term basis, the company has been gradually resolving its pending legal settlements and corporate governance concerns. In a change of stance from the past, the management has also alluded to considering biosimilars as a serious opportunity over the next 4-5 years.The Sun Pharma stock is trading at a PE of 57.8 and has picked up momentum in the recent months hitting a 52-week high earlier this month. It appears to be a promising buy for long-term investors.However, those buying into the stock must contend with the prevalence of some pending issues that could adversely impact the company’s quarterly performance in the near term — delayed resolution of the Halol plant, the outcome of the ongoing multi-jurisdiction civil antitrust matter, and ramp-up of the speciality business not on desired lines.

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