28 May 2019
4QFY19 Results Update | Sector: Healthcare
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
Impacted by distribution change; on path to build specialty portfolio
Change of distribution in India impacts earnings:
On reported basis, sales at
990.7 / 14.2
INR70b, up 5% YoY, while, EBITDA/PAT at INR9.5b/INR6b is down 33%/51%
679 / 350
YoY for the quarter. We note that SUNP’s financials were adversely impacted
by the change of its distribution in the domestic formulations (DF) business
(sales down 44% YoY to INR11b; 16% of sales) from Aditya Medisales to its
Financials & Valuations (INR b)
wholly owned subsidiary. US sales grew 20% YoY to USD443m (44% of sales),
led by a considerable order from a US-based customer for generic supply
(which would be for a period six months starting 4QFY19). Excluding the
impact from the aforementioned factors (as shown in Exhibit 2),
sales/EBITDA/PAT would have been INR76b/INR14b/INR9b v/s our estimate
Sales/EBITDA/PAT stood at INR287b (+10%
YoY)/INR57.5b (+11% YoY)/INR36.3 (+12% YoY).
ROW/API perform better than EM:
ROW sales were up 32% YoY at
USD153m, largely led by the integration of Pola Pharma. API sales, too,
increased strongly by 46% YoY to INR4.8b. However, lower Africa sales led to
a 13% YoY decline in EM sales to USD173m.
(a) SUNP guided for single-digit to low-mid-teen YoY
growth in FY20 over reported FY19 sales. (b) Profitability for FY20 would be
restricted by an increase in promotional spend on the specialty portfolio. (c)
The company has started direct to customer promotion of Illumya for 2.5
months now and would continue in FY20 as well. (d) With technical issue
being resolved, SUNP has taken salesforce on board to promote Cequa.
Valuation and view:
We cut our FY20/21 estimate by 9%/8% to factor in
increased marketing spend toward the specialty portfolio in the US market.
We also reduce the P/E multiple to 22x (from 23x) 12M forward earnings
basis to factor in the delayed pick-up in the US generics business post
resolution of the regulatory issue at Halol. Accordingly, we arrive at a TP of
Tushar Manudhane – Research analyst
(Tushar.Manudhane@MotilalOswal.com); +91 22 6129 1536
Rajat Srivastava – Research analyst
(Rajat.Srivastava@motilaloswal.com); +91 22 6129 1557
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.