13 February 2014
3QFY14 Results Update | Sector:
Healthcare
Sun Pharma
BSE SENSEX
20,193
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel.Per (%)
S&P CNX
6,001
SUNP IN
2,071.2
650/328
6/5/56
CMP: INR615
TP: INR750
Buy
M.Cap.(INR b)/(USD b) 1,273.1/20.5
Financials & Valuation (INR Billion)
Y/E MAR
Sales
EBITDA
Rep. PAT
Rep.EPS
(INR) PAT
Core
Core EPS
(INR) (%)
EPS Gr.
RoE (%)
RoCE (%)
Payout (%)
Valuations
P/E (x)
P/BV (x)
EV/EBITDA
( )
Div.Yld (%)
27.2
7.3
15.3
0.7
23.4
5.6
15.3
0.7
20.7
4.3
15.3
0.7
2014E 2015E 2016E
163.6 187.1 230.9
72.3
30.3
14.6
46.8
22.6
53.1
28.9
29.4
19.4
80.6
60.8
29.3
54.4
26.2
16.2
109.2
27.2
41.3
12.5
100.0
79.5
38.4
61.6
29.8
13.4
142.9
23.6
40.5
11.2
BV/Sh.(INR) 84.0
Sun Pharma’s (SUNP) 3QFY14 results were above estimates. The company
reported 50% revenue growth to INR42.9b (in-line), 57% EBITDA growth to
INR19.8b (beat of 8%) and 74% PAT growth to INR15.3b (beat of 14%).
US formulations growth at 57% YoY in USD terms was marginally above
estimates, driven by stronger-than-expected performance at Taro Pharma.
Domestic formulations growth continues to outpace industry due to limited
exposure to the pricing policy and higher contribution from fast growing chronic
therapies. Growth in RoW formulations was in line, while bulk drugs exports grew
below estimates due to increased captive consumption.
We estimate one-off contribution (from gDoxil, gCymbalta and gPrandin) at
INR4.5b to sales, INR3.6b to EBITDA and INR2.7b to PAT for the quarter.
Adjusted for these one-offs, we estimate core revenue at INR38.3b (miss of 2%),
core EBITDA at INR16.1b (beat of 2%) and core PAT at INR12.6b (beat of 9%).
Core EBITDA margin was down 30bp YoY to 42.1%, but 180bp above estimate of
40.3% due to stronger-than-expected performance from Taro.
SUNP has increased its sales growth guidance for FY14 to 29% from 25% earlier
(in constant currency).
Excluding the contribution from Taro, SUNP’s sales/EBITDA was in line, while PAT
was above estimate due to higher other income and lower taxes.
Post 3QFY14 results, we have largely retained our core earnings assumptions over
FY14E-16E. We estimate core EPS to witness a CAGR of 26% over FY13-16E. The stock
trades at 23.4x FY15E and 20.7x FY16E core EPS. We value SUNP’s core business at
INR713/share (24x FY16E) and add INR28/share for the Doxil opportunity and
INR9/share for other Para IV opportunities to arrive at a target price of INR750/share,
an upside of 22% from current levels. Maintain
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
3Q operational performance above est. led by Taro
Revenue growth was in line with estimates. US formulations growth at 57% YoY in
USD terms was marginally above estimates driven by stronger than expected
performance at Taro Pharma. Taro grew 15% YoY (v/s est. 8%), despite marginal
decline in volumes and incremental competition from top product Nystatin.
Domestic formulations growth continues to outpace industry due to limited
exposure to the pricing policy and higher contribution from fast growing chronic
therapies. Growth in RoW formulations was in line while bulk drugs exports grew
below estimates due increased captive consumption.
Sales Mix
(INR M)
Formulations
India
US
RoW
APIs
Others
Gross Revenues
3QFY14
41,468
9,472
26,789
5,207
1,742
109
43,319
3QFY13
26,773
7,885
14,946
3,942
2,090
59
28,922
YoY (%)
54.9
20.1
79.2
32.1
-16.7
84.3
49.8
-
2QFY14
40,298
9,495
25,880
4,924
2,117
20
42,395
QoQ (%)
2.9
-0.2
3.5
5.8
-17.7
-641.1
2.2
Source: Company, MOSL
Taro drives core EBITDA beat of 8%, Ex Taro operational performance in line
Reported EBITDA grew 57% to INR19.8b (beat of 8%) with EBITDA margin at 46.1%
(beat of 280bp). Adjusted for one-off sales, core EBITDA stood at INR16.1b (beat of
2%), due to higher contribution from gCymbalta. Core EBITDA margins declined
mere 30bp YoY to 42.1%, but were 180bp above our estimate due to higher than
expected operational performance at Taro.
Reported PAT grew faster than EBITDA and was 14% above est. due to higher other
income and lower taxes. Core PAT too was 9% above est.
EBITDA Trend
Source: MOSL, Company
13 February 2014
2

Sun Pharma
Key takeaways from the conference call
FY14E guidance:
the management has increased its revenue guidance for FY14E
to 29% from 29% earlier (guidance is in constant currency). R&D expenses are
guided at 6-8% of sales while capex is guided to be slightly above INR8b. Tax
rate guidance is unchanged at 15%.
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.
URL Pharma:
Management indicated that they have reintroduced certain
products in the market over the last 12 months. However, increase in market
share will be gradual due to present high competition for these products.
Caraco:
Majority of the approved products are expected to be re-launched once
the company fulfills all the terms mentioned in the consent decree. The re-entry
is expected to be gradual.
Domestic formulations
sales outperformed the overall market due to (1) higher
dependence on the fast-growing chronic therapies and (2) relatively limited
exposure to the NLEM. This trend is expected to continue. The company has not
increased the distributor/wholesaler margins.
New market:
For Japan, the management commented that they have not found
way to enter the market yet. This hints at their interest in the region.
Overall 131 ANDAs are pending approval as SUNP has filed 19 ANDAs in
9MFY14. Earlier management had guided to file 25 ANDAs for the year. Future
focus will be on complex, difficult-to-manufacture products.
Sun Pharma has cash of ~INR100b on its books, a substantial portion of which is
USD denominated. Gross debt on books stands at INR25bn, majority of which
USD denominated.
US sales above expectation led by Taro
US sales for the quarter were USD434m, a 57% growth YoY, driven by (1)
consolidation of DUSA Pharma & URL Pharma and (2) strong growth in base
business due to new launches. Taro Pharma also reported better than expected
performance.
Taro Pharma’s sales for 3QFY14 grew 15% YoY to USD213m (beat of 7%). Sales
growth was despite (1) marginal decline in volumes and (2) incremental
competition from top product Nystatin.
Gross profit grew 23% YoY and stood at USD172m (beat of 15%), with gross
profit margins expanding 540bp YoY to 80.7% (v/s est. 75%).
Operating profit grew 30% YoY to USD135m (beat of 20%), with operating profit
margin up 740bp YoY at 63.4% (v/s est. 56.3%). Net income grew 31% YoY to
USD116m (beat of 29%).
We note that this strong performance has come despite market-wide
expectation of a slowdown. SUNP’s management had earlier cautioned that the
strong performance in FY13 may not sustain once the competition in
dermatology segment intensifies. Competition has already increased in its
largest product Nystatin/Triamcinalone with the re-entry of Sandoz.
During the quarter, SUNP filed ANDAs for 5 products and received approval for
4. With this, cumulative ANDA filings stand at 468 products of which 337 have
been approved by the US FDA and 131 now await approval.
3
13 February 2014

Sun Pharma
Domestic formulations outpaces industry amidst new pricing policy;
Emerging markets grow 16% in constant currency
SUNP’s India formulations sales witnessed a healthy growth of 20% for 3QFY14,
given the limited impact from the NLEM and higher contribution from fast-
growing chronic therapies.
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 over
25% CAGR over next two years given its plans to increase its penetration in key
markets.
Domestic Formulations Sales (INR m); Sustained momentum
US Sales (USD m); driven by acquisitions and new launches
Source: MOSL, Company
Source: MOSL, Company
RoW Sales (INR m); to grow over 25% 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
13 February 2014
4

Sun Pharma
Valuation and 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 10% 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
27%
over FY13-FY16 for Sun’s own pipeline and believe that this estimate may have
an element of positive surprise. India formulations after witnessing a slower
growth in 1HFY14 have bounced back strongly in 3QFY14 and we expect growth
momentum to continue in this business.
Despite the 3QFY14 beat, we have largely retained our core earnings
assumptions over FY14E-FY16E. We estimate core EPS to witness a CAGR of 26%
over FY13-16E. The stock trades at 23.4x FY15E and 20.7x FY16E core EPS.
We value SUNP’s core business at INR713/share (24x FY16E), we add INR
28/share for the Doxil opportunity and INR9/share for other Para IV
opportunities to arrive at a target price of INR750/share, an upside of 22% from
current levels. Maintain
Buy.
13 February 2014
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.
Rekha Sethi appointed as an additional independent
director of Sun Pharma Board
We estimate core EPS to witness a CAGR of 26%
over FY13-16E. The stock trades at 23.4x FY15E and
20.7x FY16E core EPS.
We value SUNP’s core business at INR713/share
(24x FY16E), we add INR 28/share for the Doxil
opportunity and INR9/share for other Para IV
opportunities to arrive at a target price of
INR750/share, an upside of 22% from current levels.
Maintain
Buy.
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.
Recent developments
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 131 ANDAs pending approval. The pipeline
includes a combination of low-competition, patent
challenge and normal product opportunities.
Unresolved USFDA issues related to Caraco's
manufacturing facilities will continue to impact
sales in the US and pending ANDA approvals from
that facility
Sector view
Key investment risks
Comparative valuations
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
FY14E
FY15E
Sun Pharma
27.2
23.4
7.3
5.6
7.4
6.2
16.7
14.5
Ranbaxy
24.4
33.2
4.0
2.9
1.5
1.4
15.8
13.7
DRL
20.1
18.8
4.8
4.0
3.4
3.0
13.7
12.2
EPS: MOSL forecast v/s consensus (INR)
MOSL
Forecast
FY14
FY15
22.6
26.2
Consensus
Forecast
22.8
27.5
Variation
(%)
-0.9
-4.7
Target price and recommendation
Current
Price (INR)
615
Target
Price (INR)
750
Upside
(%)
22.0
Reco.
Buy
Shareholding pattern (%)
Dec-13
Promoter
Domestic Inst
Foreign
Others
63.7
5.7
22.6
8.0
Sep-13
63.7
3.2
22.9
10.3
Dec-12
63.7
4.4
21.6
10.3
Stock performance (1-year)
13 February 2014
6

Sun Pharma
Financials and valuation
13 February 2014
7

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13 February 2014
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8