12 August 2013
1QFY14 Results Update | Sector:
Healthcare
Sun Pharma
BSE SENSEX
18,789
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel.Per (%)
S&P CNX
5,566
SUNP IN
2,068.0
581/321
-3/39/43
CMP: INR507
TP: INR600
Upgrade to Buy
M.Cap. (INR b)/(USD b) 1,050/17.8
Financials & Valuation (INR B)
Y/E MAR
Net Sales
EBITDA
Adj PAT
Rep.EPS
(INR) EPS
Core
(
)
Gr.(%)
BV/Sh.(INR)
RoE (%)
RoCE (%)
P/E (x)
P/BV (X)
2013 2014E 2015E
112.4
49.1
32.8
14.5
14.5
41
72
24.1
31.5
32.0
7.0
153.4
66.7
42.6
12.3
12.3
30
93
24.8
24.1
24.6
5.4
177.3
73.6
48.8
26.3
26.3
14
115
22.6
34.1
21.5
4.4
Sun Pharma (SUNP) reported 31% revenue growth to INR34.8b (v/s est.
INR34.3b), a 26% EBITDA growth to INR15.3b (v/s est. INR14.9b) and 35% PBT
growth to INR15.1b (v/s est. INR14.3b). The company reported a net loss of
INR12.1b (v/s est. INR8.71b), impacted by INR25.2b provision for Protonix
settlement payment.
Revenue growth was aided by (1) 44% YoY growth in India formulations on a low
base (like-to-like growth of 11%) and (2) 32% YoY growth in US despite YoY
decline in Taro sales. RoW formulations grew 23% YoY.
We estimate one-off contribution (from Doxorubicin and Comtan) at INR2b to
sales, INR1.1b to EBITDA and INR690m to PAT for the quarter. Adjusted for these,
we estimate core revenue at INR32.85b (v/s est. INR32.37b), core EBITDA at
INR14.2b (v/s est. INR13.8b) and core PAT at INR11.72b (v/s est. INR9.6b). Core
EBITDA margin was down 180bp YoY to 43.3% (marginally above est. 42.7%),
mainly impacted by weaker-than-expected operational performance at Taro.
Adjusted PAT is much higher than estimate due to lower-than-expected tax rate
on operational income (10% v/s est. 19%).
Post 1QFY14 results, we raise FY14E/15E estimates by 10%/14% to reflect (1) higher
sales growth due to stronger-than-expected ramp-up in DUSA Pharma and URL and
(2) lower tax rate in FY14E/15E at 15%/18% v/s 19%/20% earlier. We estimate core
EPS to witness a CAGR of 22% over FY13-15E. The stock trades at 24.6x FY14E and
21.5x FY15E core EPS. We value SUNP’s core business at INR588/share (25x FY15E)
and Para IV pipeline, including generic Doxil and Prandin, at INR12/share, thus giving
us a target price of INR600/share, an upside of 19% from the current levels. Strong
earnings growth coupled with superior execution track record make SUNP an
attractive investment opportunity at the current levels; upgrade to
Buy.
Alok Dalal
(Alok.Dalal@MotilalOswal.com); +91 22 3982 5584
Hardick Bora
(Hardick.Bora@MotilalOswal.com); +91 22 3982 5423
Investors are advised to refer through disclosures made at the end of the Research Report.

Sun Pharma
1Q operational performance in line with est.
Revenue growth of 31% was aided by (1) 44% YoY growth in India formulations on a
low base (like to like growth of 11%) and (2) 32% YoY growth in US despite YoY
decline in Taro sales.
Taro Pharma’s sales for 1QFY14 stood at USD153.2m, down 3.7% YoY. The
management has indicated that it has taken price increases during the quarter, the
benefit of which will be reflected in subsequent quarters.
Domestic formulations business grew 44% YoY to INR8.49b (v/s est. of INR8.75b).
However, adjusting for one-time sales in 4QFY13, growth was 11% YoY. Sales in RoW
markets grew by 22% while constant currency growth was 13%.
Adjusted for one-off supplies to US, we estimate core revenue at INR32.85b (v/s est.
INR32.37b).
Sales Mix (INR m)
1QFY14
Formualtions
India
US
RoW
API
Others
Gross Revenues
33,308
8,486
20,314
4,508
2,116
34
35,458
1QFY13
24,954
5,877
15,411
3,666
1,531
18
26,504
YoY (%)
33.5
44.4
31.8
23.0
38.2
86.7
33.8
-
4QFY13
29,613
7,797
17,879
3,937
2,090
QoQ (%)
12.5
8.8
13.6
14.5
1.3
130
-126.1
31,574
12.3
Source: Company, MOSL
Core EBITDA was in line with estimates
Reported EBITDA grew 26% YoY to INR15.31b and margins were at 44%, 60bps
above estimated of 43.4%. Adjusted for one-off sales, core EBITDA grew 27% YoY to
INR14.2b (v/s est. INR13.8b). Core EBITDA margins were down 180bps YoY to 43.3%
(marginally above est. 42.7%) mainly impacted by weaker than expected operational
performance at Taro.
EBITDA Trend
Source: MOSL, Company
12 August 2013
2

Sun Pharma
Key takeaways from the conference call
FY14E guidance:
The management reaffirmed it FY14 sales growth guidance of
18-20% revenue growth. R&D expenses are guided at 6-8% of sales with capex
guided to be INR8b. Tax rate guidance is revised downwards to 15% from 18-
20% earlier. SUNP plans to file 25 ANDAs this year.
Taro Pharma:
Management has reiterated that the price increase undertaken by
Taro for some of its dermatology products may not be sustainable in the long-
term. It also indicated that competition for its top product, Nystatin, has
increased with Sandoz re-entering the market. The company expects increased
R&D investments to strengthen Taro’s generic pipeline.
URL & DUSA Pharma doing better than expected:
SUNP indicated that the
performance of URL Pharma/DUSA Pharma has been above expectations so far.
While the company has not disclosed the revenue size of URL Pharma, it had
earlier indicated that the profit margins are well below the consolidated entity.
Overall 133 ANDAs are pending approval and SUNP expects to file another 25 in
FY14. Future focus will be on complex, difficult-to-manufacture products.
Protonix liability settled at USD550m:
During the quarter, SUNP settled the
ongoing litigation regarding generic pantoprazole with Wyeth. SUNP will pay a
lump-sum USD550m as a part of this settlement. The company had already
provided USD105m in Q2FY13 towards this liability.
Generic Prandin launched in US with 180 day exclusivity in July 2013:
In July
2013, SUNP launched generic Prandin with a 180 day exclusivity in the US.
Prandin has a market size of USD200m. SUNP expects entry pf atleast 3 generic
players post the conclusion of the 180 day exclusivity.
New DPCO impact:
The company indicated that the new pricing policy will not
have more than INR450-500m impact on domestic formulations sales.
Sun Pharma has cash of ~INR90b on its books.
US sales: Growth momentum despite moderation at Taro
US sales for the quarter were USD364m, a 28% growth YoY, driven by (1) better
than expected performance of recently acquired DUSA Pharma & URL Pharma,
(2) Sun’s own pipeline in the US which we estimate witnessed a 20% growth YoY
and (3) sustained contribution from generic Doxil supplies
SUNP’s US performance came stronger than expected in the light of a lower
than expected performance from Taro. Taro Pharma’s sales for 1QFY14 stood at
USD153.2m, down 3.7% YoY. The growth for the quarter was impacted by a one-
time charge taken to meet certain contractual obligation (not quantified). The
management has indicated that, adjusted for this charge revenue would have
grown 10% YoY, in line with what we had expected.
Gross profit de-grew 6.5% YoY and stood at USD106.7m for the quarter, with
gross profit margins at 69.7% (down 200bp YoY). While it is unclear as to how
much the one-time charge has impacted the gross margins, increasing
competition for Nystatin has also started impacting profitability.
Operating profit declined 7% YoY to USD73.6m, with operating profit margin at
48% (down 160bp YoY). Net income declined 6.5% YoY to USD58.8m.
SUNP’s management had earlier cautioned that the strong performance in FY13
may not sustain in future as competition in its dermatology segment increases
3
12 August 2013

Sun Pharma
and puts pressure on current profit margins. Competition has already increased
in its largest product Nystatin/Triamcinalone with the re-entry of Sandoz
In July 2013, SUNP launched generic Prandin with 180 day exclusivity in US.
Prandin has market size of USD200m. SUNP expects entry of atleast 3 generic
players post conclusion of 180 day exclusivity
SUNP filed ANDAs for 4 products while it received 9 approvals. Cumulative
ANDA filings stands at 453 products of which 320 have been approved by the US
FDA and 133 now await approval.
Domestic formulations growth impacted by drug pricing policy – underlying
growth at 11%; Emerging markets grow 19% in constant currency
SUNP’s India formulations sales witnessed a growth of 44% for 1Q FY14.
However, this was due to the low base effect in 1QFY13 when the company had
on-time supplies of INR1.8b in 4QFY12. However, adjusting for this growth for
the quarter was 11%, impacted by drug pricing policy.
Given its strong positioning in the lifestyle segment, we expect Sun to sustain its
underlying growth momentum in the long-term. It is among the top players in
the CNS, CVS, Gastro, Ophthalmology and Orthopedics segments.
We also believe that SUNP’s emerging markets revenues are likely to grow at
~20% CAGR over next two years given its plans to increase its penetration in key
markets. Management has indicated that its emerging markets business has
good growth potential going forward.
Domestic Formulations Sales (INR m); Sustained momentum
US Sales (INR m); driven by acquisitions and new launches
Source: MOSL, Company
Source: MOSL, Company
RoW Sales (INR m); to grow at 22% CAGR over FY13-15E
Source: MOSL, Company; Note - Taro's US revenue consolidated from FY11 onwards; DUSA & URL
from 4QFY13 onwards | Taro's emerging market sales consolidated from FY12 onwards
12 August 2013
4

Sun Pharma
Valuation & view
We believe US will continue to be the core earnings driver for SUNP along with
support from India and RoW markets. While Taro had played a key role in
shaping Sun's US performance over the last two years, Sun's own pipeline in our
view continues to grow over 20% annually. We assume flat revenue growth for
Taro over the forecast period but with over 130 ANDAs awaiting approval, Sun
can sustain current growth momentum in the US through its own pipeline of
products. We model in a revenue CAGR of 30% over FY13-FY15 for Sun’s own
pipeline and believe that this estimate may have an element of positive surprise.
While India formulations will see a slowdown in FY14 impacted by the new
pricing policy, we expect growth to rebound to historical levels of 16-18% in
FY15E.
Post 1QFY14 results, we have increased our FY14E/15E estimates by 10%/14%
to reflect (1) higher sales growth due to stronger than expected ramp-up in
DUSA Pharma and URL and (2) lower tax rate FY14E/15E at 15%/18% for v/s
19%/20% earlier.
We estimate core EPS to witness a CAGR of 22% over FY13-15E. The stock trades
at 24.6x FY14E and 21.5x FY15E core EPS. We value SUNP’s core business at
INR588/share (25x FY15E) and Para IV pipeline including generic Doxil and
Prandin at INR12/share thus giving us a target price of INR600/share, an upside
of 19% from current levels. Strong earnings growth coupled with superior
execution track record makes SUNP an attractive investment opportunity at
current levels; upgrade to
Buy.
12 August 2013
5

Sun Pharma
Sun Pharma: an investment profile
Company description
Sun Pharma is among the largest players in the
domestic formulations market and the most profitable
one. It makes and markets specialty medicines and APIs
for chronic therapy areas such as cardiology, psychiatry,
neurology, etc. Sun has forayed into regulated markets
by acquiring majority stake in Caraco Pharma and has
strengthened its presence in US by recent acquisition of
Taro.
Capability to scale up exports, particularly to
unregulated markets, is yet to be fully
demonstrated.
Recent developments
None
Valuation and view
Key investment arguments
Ability to identify niches in long term therapy areas
with high entry barriers and build strong franchise
to ensure sustainable growth and high margins.
Sustaining superior profitability on higher base is a
strong positive.
One of the strongest ANDA pipelines from India
with 135 ANDAs pending approval. The pipeline
includes a combination of low-competition, patent
challenge and normal product opportunities.
While we are positive on SUNP's business outlook,
rich valuations have tempered down our
bullishness.
The stock is currently valued at 24.6x FY14E and
21.5x FY15E core earnings. Upgrade to Buy with TP
of INR600 (25x FY15E EPS + INR12/share from one-
off opportunities)
Sector view
Key investment risks
Unresolved USFDA issues related to Caraco's
manufacturing facilities will continue to impact sales
in the US and pending ANDA approvals from that
facility
Emerging markets and USA would remain the key
sales and profit drivers in the medium term. Japan is
expected to emerge as the next growth driver for
generics in the long-term.
We are overweight on companies that are towards
the end of the investment phase, with benefits
expected to start coming in from the next fiscal.
Comparative valuations
P/E (x)
FY14E
FY15E
P/BV (x)
FY14E
FY15E
EV/Sales (x)
FY14E
FY15E
EV/EBITDA (x) FY14E
FY15E
Sun Pharma
24.6
21.5
5.4
4.4
6.1
5.1
13.9
12.2
Ranbaxy
16.6
12.1
1.8
1.6
1.3
1.1
11.9
9.5
DRL
20.6
18.1
4.2
3.5
2.9
2.5
13.4
11.7
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY14
FY15
20.6
23.5
Consensus
Forecast
20.1
24.5
Variation
(%)
2.3
-3.9
Target price and recommendation
Current
Price (INR)
507
Target
Price (INR)
600
Upside
(%)
18.3
Reco.
Buy
Shareholding pattern (%)
June-13
Promoter
Domestic Inst
Foreign
Others
63.7
3.2
22.9
10.2
Mar-12
63.7
3.4
22.7
10.2
June-12
63.7
5.3
20.6
10.4
Stock performance (1-year)
12 August 2013
6

Sun Pharma
Financials and valuation
Income statement
Y/E March
Net Sales
Change (%)
EBITDA
EBITDA Margin (%)
Depreciation
EBIT
Interest
Other Income
Extraordinary items
PBT
Tax
Tax Rate (%)
Reported PAT
Adjusted PAT
Change (%)
Min. Int. & Assoc. Share
Adj Cons PAT
(INR Million)
2012
2013
2014E
2015E
80,054 112,389 153,440 177,340
40
40
37
16
32,524 49,063 66,723 73,596
40.6
43.7
43.5
41.5
2,912
3,362
4,107
4,478
29,613 45,701 62,616 69,118
282
443
876
876
4,223
3,727
3,706
5,072
0
5,836 25,174
0
33,554 43,149 40,272 73,314
2,991
8,206
9,938 13,197
8.9
19.0
24.7
18.0
30,563 34,943 30,334 60,118
27,083 37,638 47,726 54,372
81
39
27
14
-3,855
-4,863
-5,107
-5,618
23,228 32,775 42,618 48,754
Ratios
Y/E March
Basic (INR)
EPS
Cash EPS
Book Value
DPS
Payout (incl. Div. Tax.)
Valuation (x)
P/E
Cash P/E
Price / Book Value
EV/EBITDA
EV/Sales
Dividend Yield (%)
Profitability Ratios (%)
RoE
RoCE
Turnover Ratios (%)
Asset Turnover (x)
Debtors (days)
Inventory (days)
Wkg Capital (days)
Leverage Ratios (%)
Debt/Equity (x)
2012
11.2
13.9
58.7
4.2
19
45.2
36.5
8.6
30.6
12.5
0.8
21.5
30.3
0.6
88
95
145
0.0
2013
15.8
16.1
72.5
10.0
32
32.0
31.4
7.0
20.1
8.8
2.0
24.1
31.5
0.7
88
84
112
0.0
2014E
20.6
14.6
93.4
7.5
18
24.6
34.8
5.4
13.9
6.1
1.5
24.8
24.1
0.7
80
59
126
0.0
2015E
23.5
28.5
115.0
10.0
18
21.5
17.8
4.4
12.2
5.1
2.0
22.6
34.1
0.7
80
64
130
0.0
Balance sheet
Y/E March
Share Capital
Reserves
Net Worth
Debt
Deferred Tax
Total Capital Employed
Gross Fixed Assets
Less: Acc Depreciation
Net Fixed Assets
Capital WIP
Investments
Current Assets
Inventory
Debtors
Cash & Bank
Loans & Adv, Others
Curr Liabs & Provns
Curr. Liabilities
Provisions
Net Current Assets
Total Assets
2012
1,036
120,628
121,664
2,739
-5,199
130,818
46,542
20,407
26,135
3,447
22,303
90,506
20,870
19,261
33,672
16,703
24,950
14,410
10,541
65,556
130,818
2013
1,036
149,112
150,147
2,072
-7,112
161,457
67,933
23,769
44,165
3,447
24,194
115,054
25,778
27,108
40,587
21,581
39,892
15,766
24,126
75,162
161,457
(INR Million)
2014E
2015E
2,071
2,071
191,285 236,092
193,356 238,163
2,072
2,072
-4,313
-4,313
212,701 263,126
59,377 65,183
27,865 32,343
31,513 32,840
1,612
1,306
17,428 17,428
179,899 234,327
24,948 31,212
33,780 38,837
95,806 135,175
25,365 29,103
31,129 36,154
13,892 17,379
17,237 18,775
148,770 198,173
212,701 263,126
E: MOSL Estimates
Cash flow statement
Y/E March
OP/(Loss) before Tax
Interest
Direct Taxes Paid
(Inc)/Dec in Wkg Cap
CF from Op. Activity
(Inc)/Dec in FA & CWIP
(Pur)/Sale of Invt
Others
CF from Inv. Activity
Inc/(Dec) in Net Worth
Inc / (Dec) in Debt
Interest Paid
Divd Paid (incl Tax)
CF from Fin. Activity
Inc/(Dec) in Cash
Add: Opening Balance
Closing Balance
2012
32,524
4,223
-5,373
-7,882
23,493
-10,212
7
0
-10,205
5,361
-1,517
-282
-5,115
-1,553
11,736
21,936
33,672
2013
43,227
3,727
-10,119
-2,691
34,144
-22,503
-1,892
0
-24,394
10,393
-668
-443
-12,117
-2,834
6,915
33,672
40,587
(INR Million)
2014E
42,355
3,706
-7,138
-18,390
20,534
11,491
6,766
0
18,257
35,478
0
-876
-18,175
16,428
55,218
40,587
95,805
2015E
73,596
5,072
-13,197
-10,033
55,439
-5,500
0
0
-5,500
14,540
0
-876
-24,233
-10,569
39,369
95,806
135,175
12 August 2013
7

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Sun Pharma
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3. Broking relationship with company covered
4. Investment Banking relationship with company covered
SUN PHARMACEUTICAL
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Motilal Oswal Securities Ltd
12 August 2013
Motilal Oswal Tower, Level 9, Sayani Road, Prabhadevi, Mumbai 400 025
Phone: +91 22 3982 5500 E-mail: reports@motilaloswal.com
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