SUN PHARMACEUTICAL
Sun Pharma’s (SUNP) FY16 annual report analysis highlights muted
performance. Revenue grew just 3.2% to INR283b while EBITDA margin
expanded 70bp to 29.4%, led by gross margin expansion. Contingent
liabilities on tax disputes increased to INR30.9b (FY15: INR26.7b); cash
tax paid (at INR19.9b) was significantly higher than expensed (at
INR9.3b). Operating cash flow post interest increased from INR52.7b to
INR64.7b on decline in other assets to INR24.7b (primarily representing
USD400m receivables for financing Protonix liability); however, this was
partially offset by INR18.1b increase in receivables. FCF deteriorated to
INR20.9b (FY15: INR26.5b) on higher capex and acquisition of brands.
Goodwill and intangibles rose to INR87.8b (28% of net worth). Cash and
investments stood at INR161b (51% of net worth), with 3% yield.
Regrouping FY15 financials (in FY16 annual report) rendered prior year
financials incomparable.
The
ART
of annual report analysis
WHAT’s NEW IN FY16
Tax rates remained low at
13.8%; contingent liabilities
for tax dispute rise to
INR30.9b.
Cash tax of INR19.9b
significantly higher than tax
expenses recognized in P&L
of INR9.3b.
OCF post interest increases to INR64.7b
(FY15: INR52.7b) on decline in other
assets to INR24.7b partially offset by
INR18.1b increase in receivables.
A
NNUAL
R
EPORT
T
HREADBARE
27 September 2016
Operating performance muted:
Revenue grew just 3.2% to
INR283b. EBITDA margin expanded 70bp to 29.4%, led by gross
margin expansion, partially compensated by higher (a) legal and
consultancy cost at INR19b (6.1% of revenue; FY15: INR16.5b),
(b) revenue R&D expenses at INR22b (7.9% of revenue; FY15:
INR18b), and (c) miscellaneous expenses (after regrouping) at
INR9.8b (FY15: INR9.4b; including INR1b additional liability
towards USD400m deal).
Tax rates remain low; contingent liabilities on tax dispute rise:
Tax rates remained low at 13.8%, primarily on account of low
tax rates in certain subsidiaries (Sun Pharma Global FZE—0%)
and Sun Pharmaceutical Laboratories (SPLL). On a consolidated
basis, contingent liabilities increased steeply from INR33.9b in
FY15 to INR41.8b (13% of net worth). The increase in overall tax
dispute liabilities was driven by tax dispute liabilities for the
standalone entity increasing from INR11.1b in FY15 to INR19b.
Cash tax significantly exceeds tax expense recognized:
The
cash tax paid (cash flow; at INR19.9b) continued to be higher
than the tax expense recognized in the P&L (of INR9.3b) on
account of deferred tax assets (DTA) recognized, tax paid under
protest and advance income tax paid. The cumulative tax paid
under protest as at the end of FY16 was INR13.9b. Details on
such amount paid in FY16 or cumulative amount paid in FY15
are not available.
High capex and rising receivables dent FCF:
FCF post interest
declined 21% YoY to INR20.9b on rising capex and acquisition of
brands. Operating cash flows were primarily supported by
decline in other current assets by INR24b, which was partially
offset by increase in receivables by INR18.1b.
Stock Info
Bloomberg
CMP (INR)
Equity Shares (m)
52-Week Range (INR)
1,6,12 Rel. Perf. (%)
M.Cap. (INR b) / (USD b)
SUNP IN
771
2,406.0
934/706
0/-16/-23
1,855/27.9
Shareholding pattern (%)
As on
Promoter
DII
FII
Others
Jun-16
55.0
10.2
24.8
10.1
Mar-16
55.0
9.0
26.4
9.7
Jun-15
54.7
7.8
23.8
13.8
Note: FII Includes depository receipts
Auditor’s name
Deloitte Haskins & Sells LLP
ART will present a threadbare portrait of annual reports - statistical, strategic and structured. We believe ART's wide canvas - from accounting and auditing issues to
operating performance to management insights to governance matters - will help readers paint a clearer picture of the stock's investment worthiness.
Sandeep Gupta
(s.gupta@motilaloswal.com); +91 22 3982 5544
Somil Shah
(Somil.Shah@motilaloswal.com); +91 22 3312 4975 /
Mehul Parikh
(Mehul.Parikh@motilaloswal.com); +9122 3010 2492
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.

ART
|
Sun Pharma
ART #1
ACCOUNTING & KEY FINANCIAL INSIGHTS
De-growth in US leads to subdued performance
Revenue grew mere 3.2%
led by 1% de-growth in US
business
Revenue for the consolidated entity grew by a mere 3.2% to INR283b (FY15:
INR274b), led by 1% de-growth in revenue for the US business (which
contributes 48% of revenue) while India branded generics business grew 12%.
EBITDA margin expanded to 29.4% (FY15: 28.7%), supported by higher gross
margin of 77.1% (FY15: 75.4%), partially offset by higher employee, and
operating and administrative cost.
Revenue expenditure on R&D increased to INR22b, 7.9% of revenue (FY15:
INR18b, 6.7% of revenue).
Exceptional expenses for FY16 were INR7b. These primarily comprise of
impairment of fixed assets of INR5b and impairment of goodwill of INR1.4b on
account of Ranbaxy integration.
Exhibit 1: Operating performance muted (INR b)
Standalone
FY15
Net Revenue
Raw Materials Consumed
Gross Margin
Operating and Administrative
Expenses
Personnel Cost
EBITDA
Depreciation
EBIT
Financial Charges
EBT
Other Income
PBT (Before Exceptional Items)
Exceptional Items
PBT
Tax
PAT
80
35
45
36
15
(6)
7
(12)
6
(18)
2
(16)
-
(16)
(1)
(15)
%
100
41.0
59.0
45.3
19.4
(5.7)
6.1
(11.8)
7.0
(18.8)
5.7
(13.1)
(0.9)
(14.0)
0.1
(14.1)
FY16
76
31
45
34
15
(4)
5
(9)
5
(14)
4
(10)
(1)
(11)
0
(11)
%
100
41.0
59.0
45.3
19.4
(5.7)
6.1
(11.8)
7.0
(18.8)
5.7
(13.1)
(0.9)
(14.0)
0.1
(14.1)
FY15
194
32
161
47
30
84
5
79
0
79
3
82
(2)
80
10
70
Subsidiaries (Derived)
%
100
16.6
83.4
24.3
15.6
43.5
2.8
40.7
0.1
40.6
1.7
42.3
(1.2)
41.1
5.2
35.9
FY16
207
34
173
52
33
88
5
82
(1)
83
2
84
(6)
78
9
69
%
100
16.3
83.7
25.3
16.1
42.4
2.7
39.7
(0.3)
40.0
0.9
40.9
(3.0)
37.9
4.5
33.4
FY15
274
67
207
83
45
79
12
67
6
61
5
66
(2)
64
9
55
Consolidated
%
100
24.6
75.4
30.2
16.4
28.7
4.4
24.4
2.1
22.2
2.0
24.2
(0.9)
23.4
3.3
20.0
FY16
283
65
218
87
48
83
10
73
5
68
6
75
(7)
68
9
58
%
100
22.9
77.1
30.7
17.0
29.4
3.6
25.9
1.7
24.2
2.2
26.4
(2.4)
23.9
3.3
20.6
Source: Company Annual Report,, MOSL
Exhibit 2: US and emerging markets business lead to subdued growth (INR b)
-1%
12%
137
136
66
74
FY15
FY16
-4%
38
37
22
3%
23
29%
11
14
Source: Company Annual Report, MOSL
27 September 2016
2

ART
|
Sun Pharma
Exhibit 3: R&D expenses on a rise (INR b)
Revenue
Capital
% of revenue
8.1%
1
R&D spends increases to
8.1% of revenue
5.5%
6.2%
6.5%
7.1%
1
1
0
4
FY12
0
7
FY13
10
FY14
18
FY15
22
FY16
Source: Company Annual Report, MOSL
Taro performance deteriorates; losses at Caraco widen
Caraco’s losses increased
to INR2.9b
Taro remained a significant contributor (~58%) to overall post-tax profit .
However, its post-tax profit declined in FY16 to INR38.9b (FY15: INR46.4b).
Sun Pharma Global FZE reported a healthy growth in PAT from INR11.3b in FY15
to INR28.6b in FY16. We believe that the improvement in performance was
driven by the launch of gGleevec during the year.
Against a loss of INR0.2b in FY15, Sun Pharmaceutical Laboratories posted a
post-tax profit of INR6.7b in FY16.
The performance of Sun Pharmaceutical Industries Inc (formerly Caraco
Pharmaceutical Laboratories) worsened, with losses increasing from INR2b in
FY15 to INR2.9b in FY16. The company recognized a DTA on losses of INR1.4b
(FY15: INR0.8b).
Exhibit 4: Subsidiaries’ performance mixed (INR b)
Subsidiary
Sun Pharmaceutical Industries Inc
Mutual Pharmaceutical Company, Inc.
Ranbaxy Pharmaceutical Proprietary Limited
Ohm Laboratories Inc.,
Sun Farmaceutica Do Brasil Ltda
Alkaloida Chemical Company Zrt.
Sun Pharma Holdings
Ranbaxy (Netherlands) B.V.
Dusa Pharmaceuticals Inc
S.C Terapia S.A.
Ranbaxy Laboratories Inc.
Sun Pharmaceutical laboratories Limited
Sun Pharma Global (FZE) *
Taro Pharmaceutical Industries Ltd.(TARO) & its subsidiaries
Others
FY15
Net
Turnover
Worth
(net)
PBT
5.2
43.2
(2.0)
11.8
6.1
(0.1)
0.1
1.3
(0.3)
5.3
17.1
(0.5)
(1.7)
35.3
214.1
49.8
1.0
7.2
6.1
186.1
81.9
149.4
270.0
0.4
0.8
0.2
-
6.9
8.1
13.0
43.7
22.1
97.3
57.3
(0.4)
(1.2)
0.2
(4.3)
2.2
1.4
5.5
1.8
11.3
52.7
(1.6)
PAT
(1.2)
(0.1)
(0.3)
(0.3)
(0.4)
(1.2)
0.2
(4.3)
1.3
1.2
3.6
(0.2)
11.3
46.4
(1.9)
FY16
Net
Turnover
Worth
(net)
PBT
2.6
34.3
(4.3)
11.1
2.3
(2.7)
(1.1)
1.5
(1.2)
4.5
20.6
(1.8)
(2.3)
26.4
227.0
53.0
2.5
9.9
10.0
190.4
115.3
207.8
40.6
0.5
0.9
-
-
6.8
9.1
13.7
46.7
38.6
118.2
68.5
(1.1)
(0.7)
(0.0)
0.2
2.1
2.3
5.5
8.3
28.6
45.5
(2.0)
PAT
(2.9)
(1.4)
(1.2)
(1.2)
(1.1)
(0.7)
(0.0)
0.2
1.3
1.9
3.6
6.7
28.6
38.9
(1.8)
Source: Company Annual Report, MOSL
27 September 2016
3

ART
|
Sun Pharma
Subsidiaries incur higher legal, professional and consultancy charges
Legal, professional and consultancy charges increased to INR19b (FY15:
INR16.5b). The increase was primarily on account of subsidiaries that reported
legal and professional expenses of INR12.7b (FY15: INR8.3b).
Legal, professional and consultancy charges for the standalone entity declined
from INR8.3b in FY15 to INR6.3b in FY16. We believe legal & professional
charges for the standalone entity were higher in FY15 due to Ranbaxy merger.
Exhibit 5: Professional, legal and consultancy charges of subsidiaries increase (INR b)
Legal and professional
fees in subsidiaries
increases to INR12.7b
Particulars
Professional, Legal and Consultancy
Standalone
FY15
FY16
8.3
6.3
Derived
Subsidiary
FY15
FY16
8.3
12.7
Consolidated
FY15
FY16
16.5
19.0
Source: Company Annual Report, MOSL
Exhibit 6: Professional, legal and consultancy charges increase (INR b)
Professional, legal and Consultancy
% of revenue
6.0%
3.8%
3.7%
3.0%
4.8
FY14
16.5
FY15
19.0
FY16
6.7%
3.1
FY12
4.2
FY13
Source: Company Annual Report, MOSL
Tax rate remains low; cash taxes continue to be higher than expensed
Significant gap between
cash tax paid and tax
expenses
SUNP’s consolidated tax rate remained low at 13.8% in FY16 (FY15: 14.3%) due
to (a) recognition of deferred tax credit of INR2.6b, (b) low tax rates in certain
subsidiaries (Sun Pharma Global FZE—0%) and SPLL (refer
our previous year ART
report).
The cash tax paid (at INR19.9b) was higher than the tax expense recognized in
P&L (of INR9.3b) for yet another year.
While part of the above difference is on account of DTA recognized (like last
year), the balance is primarily on account of (a) tax paid under protest, (b)
higher advance tax paid v/s actual income tax.
Deferred tax assets (DTA) increased from INR18.5b in FY15 to INR22.4b in FY16.
This is primarily on account of increase in DTA due to unpaid liabilities. Further,
of the overall increase in DTA for FY16, INR1.5b is on account of Taro
Pharmaceuticals.
The cumulative amount of tax paid under protest stood at INR13.9b at the end
of FY16. However, details pertaining to the amount paid during FY16 or
cumulative protest money paid till FY15 are not available separately.
27 September 2016
4

ART
|
Sun Pharma
Exhibit 7: Significant gap between cash tax and tax expensed (INR b)
Particulars
Current tax (A)
Deferred tax (B)
Prior period taxes (C)
Tax Expense (D=A+B+C)
Cash taxes paid (E)
Advance tax (net of provisions)
Accrued Income Tax
Gap in current tax expense and cash tax paid (E-A)
PBT
ETR
Standalone
FY15
FY16
1.1
0.1
(1.9)
-
-
-
(0.8)
0.1
1.9
3.5
6.6
10.1
-
-
0.9
(15.6)
5.4%
3.5
(10.7)
-0.5%
TARO
FY15
10.4
(0.0)
(4.4)
6.0
6.4
4.7
-4.1
36.4
16.5%
FY16
4.4
0.2
1.7
6.3
12.8
1.6
Consolidated
FY15
FY16
16.5
12.0
(7.3)
(2.6)
-
-
9.1
9.3
17.4
19.9
11.2
15.7
8.3
0.9
7.9
42.2
64.0
67.7
15.0%
14.3%
13.8%
Source: Company Annual Report,, MOSL
Exhibit 8: DTA increases on account of unpaid liabilities (INR b)
Particulars
FY12
FY13
FY14
FY15
FY16
Unpaid Liabilities
Unabsorbed Loss
Intangibles
Inventory and Other Related Items
Others
Total
4.0
1.0
1.3
-
0.7
6.9
4.4
1.6
1.4
-
1.8
9.2
5.8
0.1
3.1
-
2.9
9.3
0.1
3.3
4.4
1.4
12.5
0.6
3.0
4.9
1.5
11.9
18.5
22.4
Source: Company Annual Report,, MOSL
Contingent liabilities rise
Contingent liability for tax
disputes rises to INR30.9b
v/s INR26.7b in FY15
On a consolidated basis, contingent liabilities increased steeply from INR33.9b
(13% of net worth) in FY15 to INR41.8b (13% of net worth) in FY16.
The increase was primarily on account of (a) income tax disputes, which
increased to INR30.9b (FY15: INR26.7b).
The increase in tax dispute liabilities was driven by standalone entity—increased
from INR11.1b in FY15 to INR19.0b in FY16.
Contingent liabilities for the subsidiary, SPLL reduced from INR15.6b in FY15 to
INR11.9b.
Standalone
FY15
11.1
0.2
0.0
0.4
0.4
Subsidiary (Derived)
FY14
FY15
FY16
7.2
15.6
11.9
0.5
0.8
0.3
(0.1)
1.0
0.3
0.1
1.1
0.3
1.5
Consolidated
FY14
FY15
12.1
26.7
0.6
0.6
0.8
0.7
0.1
1.0
0.8
0.5
Exhibit 9: Income tax demand significantly increases contingent liabilities (INR b)
Particulars
Income tax disputed liabilities
Excise duty disputed liabilities
Claims against the company not
acknowledged as debts
Guarantees given by bankers on
behalf of SUNP
Other demands
Drug Price Equalisation Account
[DPEA] on account of demand
towards unintended benefit
Fine imposed for anti-competitive
settlement agreement by
European Commission
Other matters
Total
FY14
4.9
0.1
0.0
0.4
0.2
FY16
19.0
1.0
0.0
0.5
1.0
FY16
30.9
2.0
1.1
0.8
2.5
-
3.2
3.3
-
-
-
0.0
3.2
3.3
-
-
5.6
0.7
0.2
16.3
0.8
0.2
25.8
-
-
8.7
-
0.1
17.2
-
0.1
14.9
-
-
14.3
0.7
0.3
33.9
0.8
0.3
41.8
Source: Company Annual Report,, MOSL
27 September 2016
5

ART
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Sun Pharma
CARO report requires disclosure on taxes that have not been deposited on
account of disputes, and the amount involved.
For standalone operations, the amount reported under CARO as not paid to the
government (net of amount paid/adjusted under protest of INR8.4b) was
INR6.7b, and contingent liabilities for income tax matters were INR19b.
For SPLL, the amount involved as disputed (under CARO) was INR13.1b (FY15:
INR11.5b) and contingent liabilities were INR11.9b (FY15: INR15.6b). We note
that the amount involved as disputed increased in FY16, but contingent
liabilities declined. This could be on account of change in the presentation of
amount involved from net of amount paid under protest in FY15 to gross
amount involved in FY16. The amount paid under protest in FY16 was INR5.5b
(FY15: amount not disclosed).
Exhibit 10: SPLL: FY16 - Contingent liabilities less than tax unpaid Exhibit 11: SPLL:FY15 -Contingent liabilities were higher
(INR b)
than tax unpaid (INR b)
FY16
Income Tax
Contingent
liabilities
Income tax matters
Period to which it
related
FY11-14
Amount
involved
13.1
Paid under
protest
5.5
FY15
Income
Tax
Period to which it
related
FY11-13
Amount
involved
11.5
Paid under
protest
DNA
Amount
11.9
Source: Company Annual Report, MOSL
Contingent
liabilities
Income tax matters
Amount
15.6
Source: Company Annual Report, MOSL
Exhibit 12: SUNP standalone : Contingent liabilities higher Exhibit 13: SUNP standalone: Contingent liabilities higher
than unpaid amount (INR b)
than unpaid amount (INR b)
FY16
Income Tax
Contingent
liabilities
Income tax matters
Period to which it
related
FY96 to FY08,
FY10 to FY11
Amount
involved*
6.7
Paid under
protest
8.4
FY15
Income Tax
Contingent
liabilities
Income tax matters
Period to which it
related
FY96,FY99,
FY06 to FY11
Amount
involved
6.1
Paid under
protest
DNA
Amount
19
Amount
11.1
Source: Company Annual Report, MOSL
* Net of amount paid / adjusted under protest; Source: Company
Annual Report, MOSL
Free cash flows deteriorate on higher capex and strategic investments
Operating cash flows post interest grew 20% to INR65b; free cash flows (after
strategic investments) declined 21% to INR20.9b (FY15: INR26.5b) on rising
capex and investments.
The improvement in the operating cash flows was primarily driven by INR24.7b
decrease in other assets, partially offset by an INR18.1b increase in trade
receivables.
Unrealized forex gains were INR1.2b, 2% of PBT (FY15: INR7.8b, 12% of PBT).
27 September 2016
6

ART
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Sun Pharma
Exhibit 14: Higher capex / acquisitions dent free cash flows (INR b)
Particulars
PBT
Add/Less: Unrealized forex gains
Add/Less: Provision for Impairment of Fixed Assets
Add/Less: Impairment of Goodwill on Consolidation
Add/Less: Non-cash adjustments
Add/(Less): Non-Operating adjustments
Less: Direct Taxes Paid
Operating Profit Before Working Capital Changes
Inventories
Trade Receivables
Loans and Advances
Other Assets
Trade Payables
Current Liabilities and Provisions
Working capital changes
Cash Generated from Operations after Tax
Less: Financial Cost
Free Cash Flow from Operations post Interest
Less: Capital Expenditure
Free Cash Flows post interest
Acquisitions of companies/ business units
Free cash flow post interest after strategic investments
Standalone
FY15
FY16
(15.6)
(10.7)
(5.8)
-
-
7.7
3.9
(1.9)
(11.7)
4.2
2.8
(0.5)
28.4
1.2
(22.9)
13
1.5
(3.3)
(1.8)
(10.1)
(11.9)
0
(11.9)
(0.8)
0.7
-
5.9
1.4
(3.5)
(7.0)
0.6
(2.9)
(1.3)
(0.4)
1.8
(3.2)
-5
(12.4)
(3.7)
(16.1)
(5.5)
(21.6)
0
(21.6)
Subsidiary (derived)
FY15
FY16
78.3
79.6
(1.3)
-
1.0
4.5
(2.3)
(15.5)
66.0
(2.3)
(13.2)
0.8
(28.8)
2.2
30.0
-11
54.7
(0.2)
54.5
(12.8)
41.7
0
41.7
(0.4)
4.8
1.4
5.8
(1.5)
(16.4)
72.1
(2.2)
(15.2)
(1.6)
25.2
0.2
1.7
8
80.1
0.7
80.8
(27.7)
53.1
0
53.1
Consolidated
FY15
FY16
67.7
64.0
(7.8)
-
1.0
12.9
1.6
(17.4)
54.4
1.9
(10.5)
0.3
(0.4)
3.4
7.1
2
56.2
(3.5)
52.7
(22.9)
29.7
3.2
26.5
(1.2)
5.5
1.4
11.6
(0.1)
(19.9)
65.0
(1.7)
(18.1)
(2.8)
24.7
2.0
(1.5)
3
67.7
(3.0)
64.7
(33.1)
31.6
10.7
20.9
Source: Company Annual Report, MOSL
Operating cash flows supported by decline in other assets
In FY14, USD400m receivable from a third party pertaining to Protonix liability
financing deal was represented as part of other assets (amongst other current
assets), which stood at INR24b both for standalone and consolidated entity.
In FY15, the amount under other assets outstanding on the standalone entity
declined to INR89m, while at the consolidated level, it stood at INR25.6b.
Subsidiaries’ FY15 annual reports highlight that Sun Pharma Global FZE (a wholly
owned subsidiary) extended an interest-free advance of USD400m (~INR25b) to
a third party during FY15.
In the FY16 annual report, FY15 figures of other assets (amongst other current
assets) include receivables from a third party, which has agreed to bear
damages paid by a subsidiary on account of patent infringement in
consideration of the Group agreeing to sell them pharmaceutical products at a
negotiated discounted price for a specified period.
In FY16, other assets (amongst other current assets) fell to INR425m (FY15:
INR25.6b).
Standalone
Particulars
FY14
24
FY15
0.1
FY16
0.01
FY14
24
Consolidated
FY15
FY16
25.6
0.4
Source: Company Annual Report, MOSL
Exhibit 15:
Other assets decline at standalone, maintained at consolidated level (INR b)
Other current assets - others
27 September 2016
7

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Sun Pharma
Miscellaneous expenses continue to rise
Miscellaneous expenditure increased from INR9.4b in FY15 to INR9.8b in FY16.
We note that the miscellaneous expenditure for FY15 has been regrouped in the
FY16 annual report and reduced from INR11.6b (as per FY15 annual report),
rendering the numbers incomparable.
Further, miscellaneous expenses in FY15 included INR1b of one-time additional
provisioning for USD400m Protonix financing deal.
Exhibit 16: Miscellaneous expenditure continues to rise (INR b)
Miscellaneous expenses
4.0%
3.3%
2.0%
4.3%
3.4%
3.5%
% of revenue
1.6
FY12
3.7
FY13
6.4
FY14
11.6
FY15
9.4
FY15*
9.8
FY16
*restated in FY16 Annual report;
Source: Company Annual Report,, MOSL
Cash conversion cycle deteriorates on higher inventory and receivable days
Rising inventory and
receivable days drag CCC
Cash conversion cycle deteriorated to 259 days (FY15: 199 days), mainly due to
higher inventory and receivable days.
Receivables increased to INR68b, 24% of net worth (FY15: INR51.1b, 19% of net
worth), mainly led by an increase in receivables in subsidiaries. We believe that
part of this may also be on account of gGleevec launch in 4QFY16.
We believe that the increase in inventory days is partially on account of
acquisitions made during the year – while the receivable outstanding are as at
the end of the year, revenues are only included for part of the year.
Exhibit 17: Cash conversion cycle deteriorates due to higher inventory and receivable days
Particulars*
Inventory days
Receivable days
Acceptances days
Advances for Supply of Goods and Services days
Advance from customer days
Payable days
Cash conversion cycle (Days)
* On closing basis
FY12
465
95
0
8
6
221
347
FY13
454
88
1
2
0
239
304
FY14
410
50
0
3
0
174
289
FY15
307
68
1
3
0
178
199
FY16
362
88
1
5
1
196
259
Source: Company Annual Report, MOSL
Exhibit 18: Receivables in subsidiaries increase (INR b)
Particulars
Trade Receivables
Receivables as a % of revenue
Standalone
FY15
FY16
18.0
20.2
22%
26%
Subsidiaries (Derived)
FY15
FY16
33.0
47.8
17%
23%
Consolidated
FY15
FY16
51.1
68.0
19%
24%
Source: Company Annual Report, MOSL
27 September 2016
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Sun Pharma
Acquisitions continue…
During FY16, SUNP (a) acquired two business entities – Insite Vision and GSK
Pharma’s Opiates business, (b) acquired 14 established prescription brands from
Novartis AG and Novartis Pharma AG for USD293m, and (c) entered into a
partnership for the distribution of Dapagliflozin AstraZeneca Pharma (AZPIL).
Exhibit 19: Acquisitions continue
Calendar
Year
Deals
2016
Acquired 14 brands from Novartis
2016
2015
2015
2015
Country
Japan
Entry into Japan
Distribution services agreement in India for brand ‘Oxra’ &
‘Oxramet®’ (brands of dapagliflozin, used for diabetes
treatment)
Strengthened the branded ophthalmic portfolio in the US
Vertical integration for controlled substances business
Distribution services agreement in India for brand ‘Axcer®’
(brand of ticagrelor, used for the treatment of acute
coronary syndrome)
Further strengthened Sun Pharma’s positioning as the 5th
largest Global Specialty Generic Pharma Company and No.
1 Pharma Company in India with strong positioning in
emerging markets
Strengthened the specialty product pipeline
Sterile injectable capacity in the US, supported by strong
R&D capabilities
Strengthen ocular therapies
Added 107 products to the US portfolio
Access to branded derma product
Enables entry into dermatology segment. Enhances
presence in US generic market
Import registration with DEA, API Plant approved by DEA
in Tennessee, US - access to controlled substances
capability
Rationale
Distribution agreement with AstraZeneca India
Acquisition of InSite Vision
Acquisition of GSK’s Opiates Business
US
Global Markets
Distribution agreement with AstraZeneca India
2015
Sun Pharma – Ranbaxy Merger
In-licensing agreement with Merck for
Tildrakizumab, a biologic for psoriasis
Acquired Pharmalucence
Formation of Sun-Intrexon JV
Acquired URL’s generic business
Acquired DUSA Pharma, Inc.
Acquired Taro Pharmaceutical Industries
Ltd.
Acquired Chattem Chemicals, Inc.
Assets of Able Labs Formulation plant in
Bryan
Acquired Caraco
Global Markets
2014
2014
2013
2013
2012
2010
2008
2005
1997
Global Markets
US
Global Markets
US
US
Israel
Tennessee, US
New Jersey, US & Ohio, US Dosage form plant (NJ, US) and Intellectual Property
Dosage form plant (Ohio, US)
Detroit, US
Entry into the US market
Source: Company Annual Report,, MOSL
… leading to increase in goodwill and intangibles
Goodwill on consolidation increased from INR37b in FY15 (14.4% of net worth)
to INR41.8b (13.3% of net worth) in FY16, primarily due to acquisition of Insite
Vision Incorporated (INR4.9b).
Goodwill on consolidation of existing wholly owned subsidiary, Sun
Pharmaceutical Inc increased to INR11.8b (FY15: INR11.5b) despite increased
losses—from INR1.2b to INR2.9b.
Goodwill of INR1.4b (2.1% of PBT) was impaired, which has been routed through
exceptional items.
27 September 2016
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Sun Pharma
Exhibit 20: Goodwill on consolidation remains high (INR b)
Particulars
Goodwill
Sun Pharmaceutical Industries, Inc
TKS Farmaceutica Ltd
Taro Pharmaceutical Industries Ltd
Ranbaxy Pharmaceuticals (Pty) Ltd
Insite Vision Incorporated
S.C Terapia SA
Other subsidiaries
Less: Capital reserve
Alkaloida Chemical Company Zrt
Other subsidiaries
FY12
6.0
0.4
4.6
-
-
-
0.1
0.9
-
10.2
FY13
6.8
0.4
4.9
-
-
-
0.1
0.9
-
11.3
FY14
7.3
0.4
11.4
-
-
-
0.1
0.9
-
18.3
FY15
11.5
0.4
11.8
1.3
-
12.0
1.1
1.1
0.1
37.0
FY16
11.8
-
12.9
-
4.9
12.0
1.5
1.2
0.1
41.8
High goodwill on
consolidation for loss
making subsidiary - Sun
Pharmaceutical Industries
Inc
Total
SUNP acquired 14 brands from Novartis for a consideration of USD293m,
resulting in a 41% increase in intangibles to INR87.8b (28% of net worth).
Exhibit 21: Intangibles at 28% of net worth (INR b)
Particulars
Goodwill on acquisition
Goodwill on consolidation
Computer software
Trademarks, Designs and Other
Intangible Assets Under Development
Total Intangibles
FY12
0.6
10.2
-
2.5
-
13.4
FY13
9.7
11.3
-
3.8
-
24.9
FY14
FY15
FY16
10.8
13.6
14.1
18.3
37.0
41.8
-
0.8
0.7
4.1
5.7
25.9
-
5.1
5.3
33.2
62.1
87.8
Source: Company Annual Report, MOSL
Exhibit 22: Goodwill still high as 18% of net worth (INR b)
G/W on consolidation
G/W as % of NW
20%
14%
9%
1
10
FY12
10
11
FY13
16%
11
18
FY14
FY15
FY16
14
37
G/W on acquisition
18%
14
Exhibit 23: Intangibles rise rapidly to 28% of NW (INR b)
Total Intangibles
% of net worth
24%
17%
11%
18%
28%
42
13.4
FY12
24.9
FY13
33.2
FY14
62.1
FY15
87.8
FY16
Source: Company Annual Report,, MOSL
Source: Company Annual Report,, MOSL
Cash and investments at 51% of net worth; yields 3%
Cash and investments increased to INR160.7b (51% of net worth) from
INR145.4b in FY15 (57% of net worth), yielding 3% returns; of this amount,
INR81.4b (FY15: INR57.4b) is in Taro Pharmaceuticals.
27 September 2016
10

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Sun Pharma
51% of net worth in cash
and investments
Exhibit 24: Investments high, yielding only 3% (INR b)
Investment, cash and loans
5.9%
6.1%
3.7%
3.0%
160.7
FY16
Yield on average Basis
60.8
FY13
102.4
FY14
145.4
FY15
Source: Company Annual Report, MOSL
Financials of FY15 regrouped in FY16 annual report
Regrouping of FY15
numbers makes financials
of FY15/FY16 incomparable
In the FY16 annual report, SUNP regrouped some heads in the financial
statements, making the financials of FY15/FY16 incomparable with the previous
years. For example:
In the FY15 annual report, provisions under the head, ‘others’ primarily
represented a USD400m deal pending to be executed. In the FY16 annual
report, the line item (for FY16 and FY15) was regrouped with other line
items (primarily provision for product returns, rebates, medicads and
others).
In the FY15 annual report, ‘other current liabilities – others’ stood at
INR8.3b. This was reduced to INR3.4b in the FY16 annual report, leading to
additions under various other heads of the balance sheet, which makes the
other heads incomparable with prior years.
Particulars
Short Term Provisions
Provision Others
Product Returns, Rebates,
Medicaids etc
Total
Long Term provisions
Provision Others
Product Returns, Rebates,
Medicaids etc
Total
FY14
3.2
8.9
12.1
23.2
0.6
23.8
FY15
5.9
14.4
20.4
22.4
0.8
23.2
FY15*
21.8
Merged with
above
21.8
23.2
Merged with
above
23.2
FY16
27.0
Merged with
above
27.0
18.4
Merged with
above
18.4
Exhibit 25: Provisions – regrouped in FY16 financials (INR b)
*As restated in FY16 AR
Source: Company Annual Report, MOSL
Exhibit 26: Other current liabilities
- others –
Regrouped in FY16 annual report (INR b)
FY12
FY13
FY14
FY15 AR
FY15*
FY16
0.5
FY12
*As restated in FY16 AR;
0.2
FY13
0.2
FY14
8.3
FY15 AR
3.4
FY15*
2.2
FY16
Source: Company Annual Report, MOSL
27 September 2016
11

ART
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Sun Pharma
ART #2
GOVERNANCE MATTERS
Auditor rotation likely as per Companies Act 2013
Statutory auditors to be
mandatorily changed post
FY17, in accordance with
the new Companies Act
Deloitte Haskins & Sells (DHS LLP) has been the auditors of Sun Pharma since
FY04.
The Companies Act 2013 requires mandatory rotation of auditors for listed
entities after serving for 10 consecutive years. The Act further provides a three-
year period (from April 1, 2014) to comply with this requirement.
As required by the new Companies Act, DHS LLP was appointed as the statutory
auditor of the company in FY14 for three years till FY16-17 (subject to
ratification of its appointment at every AGM).
Managerial remuneration as a percentage of PBT dips during FY15
Managerial remuneration stood at INR255m, 0.4% of PBT (FY15: INR260m, 0.5%
of PBT).
Exhibit 27: Managerial remuneration constant
Managerial Remuneration (INR m)
0.7
0.6
0.3
216
FY12
103
FY13
221
FY14
260
FY15
255
FY16
0.5
0.4
Managerial remuneration as % of profits
Source: Company Annual Report, MOSL
27 September 2016
12

ART/THEMATIC GALLERY
ART
ART
THEMATIC

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ART
|
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