Sun Pharma
BSE SENSEX
31,156
S&P CNX
9,618
14 June 2017
Update
| Sector:
Healthcare
CMP: INR539
TP: INR650(+21%)
Opportunity in Adversity
Multiple challenges in FY18; recovery in earnings expected from FY19
Buy
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
Avg Val, INRm
Free float (%)
SUNP IN
2,406.0
855 / 493
-21/-38/-46
1,289.6
20.0
2734
45.6
Sun Pharma (SUNP) is trading at ~16x FY19E PER, which is ~20% and 30% below
its 10- and 5-year average valuations, respectively. The stock has corrected
more than 50% from its peak of >INR1,100 (in April 2015). This downward
movement can be attributed to the regulatory overhang on Halol, competition
in key products, consolidation in the distribution channel, and visibility of
limited launches of niche products.
We expect a recovery in earnings from FY19 (EPS growth of ~20% in FY19E), led
by Halol resolution, launch of two specialty business products (although
meaningful contribution from MK-3222 and Seciera may come only after 12-18
months of launch), and base business price erosion of <10% (v/s double-digit
price erosion in FY17 and FY18E).
The industry has been adversely affected by channel consolidation over past 2-
3 years. We expect further pressure in FY18 due to big-ticket-size
consolidations like Walmart-Mckesson and Walgreens-Rite Aid.
The big-three pharmacy benefit managers (PBMs) – Express Scripts, CVS
Caremark and OptumRx (a division of large insurer UnitedHealth Group) –
control ~75-80% of the market, which translates into 180m prescription drug
customers. We expect double-digit price erosion in the base business over next
12-18 months. However, base business price erosion should come down to
single-digit thereafter as we do not foresee any big consolidation in the
distribution channel.
For the US business, we are already building in revenue decline of ~15% YoY in
FY18 and EBITDA margin contraction of ~650bp in Taro and ex-Taro US
business. This is primarily based on no Halol resolution, high base impact of
Gleevec in FY17, double-digit base business erosion due to intensifying
competition, and channel consolidation.
Financials Snapshot (INR b)
Y/E Mar
2017 2018E 2019E
Sales
302.6 296.3 338.3
EBITDA
87.8
76.7
93.0
Rep. PAT
69.6
61.1
74.2
Rep.EPS (INR)
28.9
25.4
30.8
Adj. PAT
62.9
61.1
74.2
Core EPS (INR)
26.1
25.4
30.8
EPS Gr. (%)
48.0 -12.2
21.3
BV/Sh. (INR)
152.3 160.3 184.1
RoE (%)
18.5
16.3
17.9
RoCE (%)
19.4
16.5
18.8
P/E (x)
20.5
21.1
17.4
P/BV (x)
3.5
3.3
2.9
Shareholding pattern (%)
As On
Mar-17 Dec-16 Mar-16
Promoter
54.4
54.4
55.0
DII
12.2
12.2
9.0
FII
21.3
21.8
26.4
Others
12.1
11.7
9.7
FII Includes depository receipts
Stock Performance (1-year)
Sun Pharma.Inds.
Sensex - Rebased
900
800
700
600
500
400
Channel consolidation in the US to add further pressure in FY18
Specialty business commercialization from FY19E; operating breakeven in
FY20E
Approval of multiple sclerosis drug Tildrakuzumab is expected at FY19-
beginning (filling done in May-17), while Seciera NDA filling will be done in
3QFY18 with launch expected in 2HFY19. Apart from this, the ramp-up of
Odomzo and the launch of opthal products Xelpros/Elepsia are expected in
2HFY18.
SUNP is currently spending ~4.5% of sales on specialty business R&D, which is
not fetching any returns as of now. Management expects to achieve EBITDA
break-even in the specialty business by FY20 (which would mean contribution
of ~USD225-250m at EBITDA levels from the specialty business). We expect
revenues of ~USD400-450m from new launches in the specialty business for
SUNP, which will be more than double for any other Indian peer. However,
Absorica (which contributes ~USD180m to SUNP’s US sales) will go off-patent
from 2021.
Kumar Saurabh
(Kumar.Saurabh@MotilalOswal.com); +91 22 6129 1519
Ankeet Pandya
(Ankeet.Pandya@MotilalOswal.com);
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.

Sun Pharma
Specialty pharma business is growing at almost double the pace of generics
business in the US (grew ~25% v/s 12% for generics over last year). Given that
generics growth is expected to decline (due to new competition and fewer big
products going off-patent), companies with a focus on specialty business will
continue delivering robust growth.
Halol resolution not likely in FY18; Dadra resolution is key
The company has initiated process for site transfer of key future launches
(including Xelpros and Elepsia) post the last re-inspection of the Halol plant.
SUNP has not built in resolution of this plant in FY18. Halol accounts for ~10% of
total sales for SUNP. Notably, the outcome of this plant will not reflect upon
regulatory compliance of the company’s other plants.
Dadra is the second largest plant in India for SUNP and resolution of 483s at this
plant is key for new product launches in FY18. Notably, SUNP received 11 483
observations at this plant post inspection in April-17. Management has guided
for no disruption due to the pending 483s at this plant.
USD 100m expected from Ranbaxy integration
SUNP stated in its 4QFY17 earnings call that it has received two thirds of
expected synergy benefits from the Ranbaxy merger by end-FY17 (i.e. USD200m
out of USD300m expected). However, because of pricing pressure in the US, the
impact on EBITDA margins was largely mitigated. SUNP expects USD100m of
synergy benefits at EBITDA levels from the Ranbaxy merger. If the synergy
benefits come through in FY18, then the impact of pricing pressure in the US will
get mitigated.
Cash of >USD2b is an option value
SUNP had net cash balance of ~USD1.5b as of end-FY17. Also, the company is
generating FCF of ~USD700m per annum. Over last 2-3 years, SUNP has done
multiple investments to strengthen its specialty business portfolio (including
MK-3222, Seciera and Japanese branded business acquisition). Robust balance
sheet, along with strong FCF, provides SUNP comfort to further strengthen its
specialty business portfolio.
Near-term concerns persist; valuation more than factors in these concerns
Near-term earnings will be under pressure due to the weak business outlook in
the US and the GST impact in India. However, this is more than factored in the
recent stock price decline, in our view (valuations at ~30% below five-year
average). We believe the strategic investments in the specialty business over
last 2-3 years, coupled with stable growth in the domestic market and the
enhanced focus on complex generics in the US, will help drive earnings growth
in the medium term. We maintain our Buy rating on SUNP with a target price of
INR650 @ 20x FY19E PER.
14 June 2017
2

Sun Pharma
US business – concerns persists, but impact largely built in
SUNP delivered US sales of ~USD2b in FY17. We expect the company’s US revenues
to decline ~15% YoY in FY18. We have assumed base business erosion of ~10-11%
and no Halol resolution in FY18E. Launch of key products (such as Xelpros, Elepsia
and Glumetza) and ramp-up of Odomozo are expected to partially offset the impact
of price erosion in the base business. We expect a pick-up in US sales from FY19,
driven by Halol resolution and commercialization of Tildrakuzumab (FY19-
beginning)/Seciera (2HFY19E).
Exhibit 1: US business to improve FY19 onward
110.8
US Sales (USD m)
Growth YoY (%)
47.5
55.0
42.9
39.3
-7.5
-1.2
2,054
FY17
13.1
-15.1
1,743
FY18E
1,971
FY19E
494
FY11
729
FY12
1,130
FY13
1,615
FY14
2,249
FY15
2,080
FY16
Source: MOSL, Company
We have assumed Taro and ex-Taro US business EBITDA margin to shrink ~600-
650bp in FY18 on the back of competition in key products and price erosion due to
channel consolidation.
Exhibit 3: Increase in competition to put pressure on Taro
margin
Taro
56
29
49
50
Exhibit 2: US ex Taro margin to improve from FY19E
Decline due to double digit price erosion
and impact of Gleevec FTF in FY17
32
26
USA (Ex Taro)
FY17
FY18E
FY19E
Source: MOSL, Company
FY17
FY18E
FY19E
Source: MOSL, Company
14 June 2017
3

Sun Pharma
Tildrakuzumab – first big launch in specialty segment
Plaque psoriasis market:
Plaque psoriasis is ~USD5b market in the US, and is
expected to reach USD8-8.5b over next 6-7 years. Currently, there are seven
players in this market, with Stelara (IL-12/23 based), Humira (TNF - α based) and
Cosentyx (IL-17) being the key ones. More than five players are expected to
enter the market over next two years. Given that IL-17 (v/s IL-23 – MK-3222 is
part of this class of drugs) has a much quicker onset of action, we expect
Cosentyx and Taltz to gain significant market share from TNF - α based
traditional products. MK-3222, which comes under IL-23 class of drugs, has
shown dosage administration convenience. MK-3222 has the potential to gain
mid-single-digit market share in the plaque psoriasis market over next five years
(~USD350-400m of revenue).
Tildrakizumab’s P3 data superior to P2 data:
Tildrakizumab’s phase-3 data on
the more robust PASI-90 metrics were much better than phase-2 data.
Tildrakizumab posted phase-3 PASI 75 scores of 77-78% and PASI 90 scores of
54-59% at 28 weeks. This compares to the 16-week PASI 75 and 90 scores of
74% and 52% in the phase-2 trails.
Tildrakizumab’s efficacy in line with current standards of care:
Cross-trial
comparisons suggest that MK-3222’s efficacy is as good as or better than
existing biologics, based on the placebo-adjusted treatment differences on the
PASI-75 and PASI-90 metrics (Exhibit
7 and 8).
These noval agents include three
TNF - α inhibitors (Enbrel, Humira and Remicade), one IL-17 inhibitor (Cosentyx)
and one IL-23 inhibitor (Stelara). Stelara and Humira are current standards of
care in psoriasis.
Efficacy lags newer class of IL-17 and IL-23 inhibitors:
Cross-trial comparisons
suggest MK-3222’s efficacy is lower compared to other IL-23/IL-17 inhibitors
currently under development, based on the placebo-adjusted treatment
differences on the more-robust PASI-90 metric (Exhibit 9). In phase III trials, MK-
3222’s PASI-90 score was ~2,000bp lower than the other IL-23 inhibitor
(Guselkumab). MK-3222’s PASI-90 score was also lower than IL-17 inhibitor
Taltz, which was approved in March by the FDA.
Lower dosing frequency:
MK-3222’s dosage frequency is much lower compared
to all biologics (as seen in Exhibit 10), making it a competitive product in the
psoriasis space. Although Stelara’s dosing regimen is similar to MK-3222, its
PASI-90 efficacy score is 1,900bp lower than that of MK-3222.
Winning over payers crucial in a crowded market:
In our modeling of
Tildrakizumab, we assume 2HFY18 US approval and 2020 revenues of USD2.1b.
This seems reasonable to us, given that the psoriasis market is expected to grow
to USD9b by 2024 from USD5b in 2014. However, the psoriasis biologics market
will become more competitive with many drug classes competing for the same
moderate-to-severe patient population. Currently, there are six FDA-approved
biologics for the treatment of psoriasis and additional two IL-17 and three IL-23
targeting drugs in the pipeline. Accordingly, winning over payers is crucial to the
commercial success of MK-3222.
14 June 2017
4

Sun Pharma
Comparison of phase III with phase II data
Exhibit 4: MK-3222 (100 mg) achieved PASI 75 scores in 77%
of patients in phase III v/s 66% in phase II
MK-3222- PASI 75 (100 mg)
77%
61%
63%
66%
72%
Exhibit 5: MK-3222 (200 mg) achieved PASI 75 scores in 78%
of patients in phase III v/s 74% in phase II
MK-3222- PASI 75 (200 mg)
64%
74%
78%
Phase II
(Week 12)
Phase III
(Week 12)
Phase II
(Week 16)
Phase III
(Week 28)
Phase II
(Week 12)
Phase III
(Week 12)
Phase II
(Week 16)
Phase III
(Week 28)
Source: MOSL, Company
Source: MOSL, Company
Exhibit 6: MK-3222 (100 mg) achieved PASI 90 scores in 54%
of patients in phase III v/s 39% in phase II
MK-3222- PASI 90 (100 mg)
37%
39%
54%
Exhibit 7: MK-3222 (200 mg) achieved PASI 90 scores in 59%
of patients in Phase III v/s 52% in phase II
MK-3222- PASI 90 (200 mg)
52%
36%
59%
Phase III (Week
12)
Phase II (Week Phase III (Week
16)
28)
Source: MOSL, Company
Phase III (Week
12)
Phase II (Week Phase III (Week
16)
28)
Source: MOSL, Company
Exhibit 8: MK-3222 (100 mg) achieved PASI 100 scores in
24% of patients in phase III v/s 15% in phase II
MK-3222- PASI 100 (100 mg)
24%
Exhibit 9: MK-3222 (200 mg) achieved PASI 100 scores in
30% of patients in phase III v/s 17% in phase II
MK-3222- PASI 100 (200 mg)
30%
13%
15%
13%
17%
Phase III (Week
12)
Phase II (Week Phase III (Week
16)
28)
Source: MOSL, Company
Phase III (Week
12)
Phase II (Week Phase III (Week
16)
28)
Source: MOSL, Company
14 June 2017
5

Sun Pharma
Cross comparison of Phase III data
Stelara and Humira are
current standards of care in
psoriasis. While Stelara’s
efficacy is similar to Humira,
it has an even more
convenient dosing schedule
(once every three months).
Steady growth in the uptake
of Stelara is likely owing to
patient and physician
preference for the more
convenient dosing of
Stelara over the TNF-α
inhibitors
Exhibit 10: Tildrakizumab’s 28-week PASI 75 score of 78% looks comparable to existing
biologic therapies
TNF-α
82%
71%
60%
IL-17
76%
IL-12/23
76%
PASI 75
IL-23
78%
Enbrel
Humira
Remicade
Cosentyx
Stelara
MK-3222
Source: MOSL, clinicaltrials.gov
Although Humira was the
third TNF-α inhibitor
approved for psoriasis in
the US, it quickly
gained market share on its
more-convenient dosing
schedule and dosage
medium
Exhibit 11: Tildrakizumab’s 28-week PASI 90 score of 59% also looks comparable to
existing biologic therapies
TNF-α
53%
27%
58%
IL-17
54%
IL-12/23
PASI 90
IL-23
59%
40%
Enbrel
Humira
Remicade
Cosentyx
Stelara
MK-3222
Source: MOSL , clinicaltrials.gov
Brodalumab's tendency to
cause suicidal ideation
would create a situation for
restrictive labeling that
would limit its total
addressable patient
population
Exhibit 12: Tildrakizumab’s 28-week PASI 90 score of 59% appears lower to newer class of
IL-23/IL-17 inhibitors
IL-17
86%
68%
PASI 90
IL-23
IL-23
80%
81%
59%
Source: MOSL, clinicaltrials.gov
14 June 2017
6

Sun Pharma
Exhibit 13: MK-3222’s dosage frequency is much lower compared to all biologics, making it
a competitive product in the psoriasis space
Steady growth in the uptake
of Stelara over 2009-14 is
likely owing to patient and
physician preference for the
more convenient dosing
schedule (once every three
months) of Stelara.
Although MK-3222’s dosing
regimen is similar to
Stelara, its PASI 90 efficacy
score is 1,900bp higher than
that of Stelara
60
Dosing Frequency
26
25
17
16
9
8
6
6
Source: MOSL, clinicaltrials.gov
Seciera (dry eye product) launch expected by 3QFY18
SUNP released preliminary results of phase-3 clinical trial data for Seciera
(cyclosporine-based treatment for dry eye). After 12 weeks of treatment,
Seciera™ showed statistically significant improvement (v/s Vehicle) in the
primary end point, Schirmer’s score (a measurement of tear production)
(p<0.0001). Further details of phase-3 study data are yet to come.
SUNP owns exclusive, worldwide rights to Seciera™,
and is developing it to
commercialize for global markets, including the US, Europe, Japan and several
emerging markets.
Adverse events reported in the trial were mild to moderate in nature, and
similar to other approved drugs. As SUNP continues to analyze the data,
additional significant findings will be shared at the upcoming medical
conferences.
The company reckons that the global dry eye market could be worth USD5b by
2020. ~16m people suffer from dry eye disease in the US currently.
Launch time:
We expect this launch to happen by 3QFY18. However, the ramp-
up may take some time.
Competition:
Seciera will compete against Allergan's Restasis (USD1.3b annual
sales). Shire has also launched Xiidra. It will be important to see how much
market share SUNP can take in this growing dry eye market. Currently, the
street is not building anything from the initiative, as contribution from this will
come 2019 onward.
Strengthening opthal specialty portfolio:
This is an important step in building
specialty business franchise in the US. Apart from this product, SUNP has
products in the opthal segment, including Xelpros, Bromsite and Dexasite.
SUNP aims to build a branded business portfolio in the derma and opthal space
in the US. Products including MK 3222 and Seciera will help achieve this target.
About dry eye disease:
Dry eye disease, as defined by the National Health
Institute (NHI), occurs when the eye does not produce tears properly, or when
the tears are not of the correct consistency and evaporate too quickly. In
addition, inflammation of the surface of the eye may occur along with dry eye.
If left untreated, this condition can lead to pain, ulcers or scars on the cornea,
and some loss of vision.
14 June 2017
7

Sun Pharma
Valuation and view
SUNP has historically commanded 20-25% premium to Indian pharma peers,
typically at 25-27x one-year forward P/E multiples. The company is trading at
~16x FY19E PER, which is ~20% and 30% below 10- and 5-year average
valuations, respectively. The stock has corrected more than 50% from its peak of
>INR1,100 (in April 2015). This downward movement can be ascribed to the
regulatory overhang on Halol, competition in key products, consolidation in the
distribution channel, and visibility of limited launches of niche products.
We expect a recovery in earnings from FY19 (EPS growth of ~20% in FY19E) on
the back of Halol resolution, launch of two specialty business products (although
meaningful contribution from MK-3222 and Seciera may come only after 12-18
months of launch), and base business price erosion of <10% (v/s double-digit
price erosion in FY17 and FY18E).
The stock at current valuations does not fully value its rich US pipeline and
stable, cash-generating domestic business. Consistent outperformance
domestically with market share gains and high profitability reflects
management’s execution capability (and product selection skills). Identification
of value-accretive assets with successful integration has been one of the
cornerstones of SUNP’s success.
Our target price implies 21% upside
We assign a target P/E of 20x to SUNP’s base business EPS for FY19E and arrive at a
target price of INR650, implying 22% upside from current levels. Our target multiple
is:
at the lower end of its historical average P/E band (1-year forward)
in line with sector average P/E of 20x
Key catalysts
We have not factored in any potential acquisition that SUNP can execute (net
cash surplus) as well as positive development on its novel molecule
Tildrakizumab (in-licensed from Merck).
Execution of RBXY integration
Halol resolution
Risks to our thesis
Currency volatility:
SUNP derives more than 70% of its revenues (and profits)
from the overseas business (largely the US), and thus, is affected by currency
fluctuations at the operational level. However, as a prudent measure, the
company has historically hedged ~50% of its net exposure to the USD through
forward covers (<12 months duration). A reversal in the current trend (i.e.,
rupee appreciation) thus poses downside risk to forecasts.
Intensifying competition in US derma market:
Taro accounts for 20% of SUNP’s
business and is currently witnessing pricing pressure owing to intensified
competition in the US derma market. Additionally, if some of the approved
players (2-3) re-enter the market, there could be accelerated risk to pricing in
the US derma space, hurting SUNP (Taro) adversely.
14 June 2017
8

Sun Pharma
Concerns related to US business are already getting factored in valuations
Exhibit 14: Sun Pharma PE (x)
62
52
42
32
22
12
15.7
25.8
19.1
PE (x)
Peak(x)
Avg(x)
52.3
Min(x)
Exhibit 15: Sun Pharma PE Relative to Sensex PE (%)
210
140
70
0
-70
50.4
0.3
Sun Pharma PE Relative to Sensex PE (%)
LPA (%)
Source: Company, MOSL
Source: Company, MOSL
Exhibit 16: Domestic peer comparison
Sector / Companies
Alembic Pharma
Alkem Lab
Aurobindo Pharma
Biocon
Cadila Health
Cipla
Divis Labs
Dr Reddy’ s Labs
Glenmark Pharma
Granules India
GSK Pharma
IPCA Labs.
Lupin
Sanofi India
Sun Pharma
Torrent Pharma
FY17
25.5
25.3
15.5
33.8
38.6
34.7
16.2
36.2
16.2
19.6
71.7
30.9
19.5
31.2
18.4
21.7
PE (x)
FY18E
21.2
24
13.8
31.3
30.3
27.6
18
24.5
14.2
17.2
47.5
22.2
19.2
30.7
21
20.1
FY19E
17.2
20.2
12.1
23.1
23.6
22.1
16.2
18.2
11.9
12.3
41
16.7
15.7
23.2
17.3
16.4
EV/EBIDTA (x)
FY17 FY18E
18.4
15.2
22
18.3
11.3
9.6
24.3
19.5
24.6
16.5
18
14.5
9.9
10.5
19
13
13.8
12.3
10.9
8.1
57.9
39.8
16.5
13.3
12.7
12.2
17.2
15.9
14.7
15.6
15.4
13
FY19E
12.2
14.8
8
14.7
12.8
11.9
9
9.7
10.5
5.9
32.8
10.6
9.9
12.3
12.3
10.4
FY17
23.1
23.4
28.3
13.6
24.8
10.2
23.5
9.6
24.7
21.1
21.5
8.6
22
17.1
18.5
25.3
ROE (%)
FY18E
23.6
20.8
24.8
13.3
26.1
11.5
19.2
13.3
22.4
17.7
39.7
11
18.9
16.3
16.3
23.5
FY19E
24.1
21
22.5
16.1
27.1
12.8
19.2
15.1
21.3
18.8
54.4
13.2
19.7
19.3
17.9
24.6
EPS Growth (%)
FY17 FY18E FY19E
-43.5
20.7
23.3
7.5
5.8
18.6
13.6
12.2
13.8
31.7
8.1
35.8
-7.9
27.6
27.9
-15.5
25.5
25.3
-5.3
-9.7
11.1
-45.1
47.5
35
58
14.6
18.8
32.3
13.1
41
-22.2
51.2
15.6
52.8
39.4
33.5
17.5
1.6
22.5
24.9
1.5
32.4
48
-12.2
21.3
-7.6
8.3
22.4
Source: Company, MOSL
Exhibit 17: International peer comparison
P/E
Teva
Mylan
Shire
Allegran
Valeant
Sun Pharma
FY18E
6.3
7.7
10.9
14.4
3.4
21
FY19E
6.4
7.1
9.6
12.9
3.3
17.3
EV/EBITDA
FY18E
FY19E
9.1
9.3
8.4
7.8
11.2
10.1
13.5
12.6
8.9
8.9
15.6
12.3
RoE
FY18E
11.4
18.2
14.1
3.6
51
16.3
FY19E
11.4
18.8
14.7
5.1
107.9
17.9
EPS Growth
FY18E
FY19E
-1.5
6.7
9.6
6.2
13.4
11.4
11.5
11.8
5
18.4
-12.2
21.3
Source: Company, MOSL
14 June 2017
9

Sun Pharma
Story in Charts
Exhibit 18: Revenues to exhibit 6% CAGR over FY17-19E
Formulations (INR b)
API (INR b)
23
11
5
53
6
75
8
106
8
154
266
270
299
291
331
494
FY11
729
FY12
15
16
20
47.5
Exhibit 19: US generic sales to be driven by new launches
US Sales (USD m)
110.8
55.0
42.9
39.3
-7.5
-1.2
Growth YoY (%)
1,743
-15.1
13.1
1,971
1,130 1,615 2,249 2,080 2,054
FY13
FY14
FY15
FY16
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Source: Company, MOSL
FY17 FY18E FY19E
Source: Company, MOSL
Exhibit 20: Domestic business to exhibit robust growth
India sales (INR b)
82%
67
73
77
85
Growth YoY (%)
95
Exhibit 21: RBXY synergy benefits to drive margin expansion
39.9
EBITDA (INR m)
43.7 43.3
28.3
EBITDA Margin (%)
34.2
28.7
29.0
29
30
2%
FY13
37
24%
25.9
27.5
22%
FY12
8%
FY14
FY15
FY16
7%
9%
12%
20
FY11
32
FY12
49
FY13
69
FY14
77
FY15
80
FY16
88
77
93
FY17 FY18E FY19E
Source: Company, MOSL
FY17 FY18E FY19E
Source: Company, MOSL
Exhibit 22: EBITDA to improve with increase in gross margin
Gross Margin (%)
75.9
80.7
81.5
43.7
82.6
75.3
EBITDA Margin (%)
76.6
73.1
71.5
73.5
Exhibit 23: R&D expense to increase going forward
R&D expense (INR b)
% of sales
10
5
3
5
4
FY12
5
6
7
8
8
10
34.2
39.9
43.3
28.3
28.7
29.0
25.9
27.5
6
FY13
10
FY14
18
22
23
30
35
FY11
FY12
FY13
FY14
FY15
FY16
FY17 FY18E FY19E
FY11
FY15 FY16E
FY17 FY18E FY19E
Source: Company, MOSL
Source: Company, MOSL
Exhibit 24: EPS to improve from FY19E onwards
Exhibit 25: Margin expansion to improve return ratios
RoE (%)
28.8
25.6
33.4
31.5
21.5
22.7
18.7
16.5
FY16
19.4
18.5
16.5
16.3
18.8
17.9
RoCE (%)
22.2
21.0
8
11
12
13
19
20
29
25
31
FY11
26.9
24.0
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18E FY19E
Source: Company, MOSL
FY12
FY13
FY14
FY15
FY17 FY18E FY19E
Source: Company, MOSL
14 June 2017
10

Sun Pharma
Financials and Valuations
Income Statement
Y/E March
Net Sales
Change (%)
EBITDA (INR b)
Margin (%)
Depreciation
EBIT
Int. and Finance Charges
Other Income - Rec.
Extra-ordinary Exp
PBT
Tax
Tax Rate (%)
Profit after Tax
Change (%)
Margin (%)
Less: Mionrity Interest
Reported PAT
Adjusted PAT (excl. Ex. Items)
2013
112,388
40.3
49,063
43.7
3,362
45,701
443
3,727
5,836
43,148
8,456
19.6
34,693
16.5
31
4863
29,830
34,791
2014
160,044
42.4
69,257
43.3
4,092
65,165
442
6,282
25,174
45,831
7,022
15.3
38,809
11.9
24
7375
31,434
52,813
2015
272,865
70.5
77,198
28.3
11,947
65,250
5,790
6,946
2,378
64,029
9,147
14.3
54,882
41.4
20
9488
45,394
47,415
2016
277,442
1.7
79,561
28.7
10,135
69,426
4,769
9,848
6,852
67,653
9,349
13.8
58,304
6.2
21
11145
47,159
47,069
2017
302,642
9.1
87,751
29.0
12,648
75,103
3,998
19,374
0
90,479
12,116
13.4
78,363
34.4
26
8719
69,644
62,890
2018E
296,323
-2.1
76,663
25.9
13,000
63,663
3,000
23,000
0
83,663
12,549
15.0
71,113
-9.3
24
10000
61,113
61,113
(INR Million)
2019E
338,257
14.2
92,966
27.5
14,000
78,966
2,000
25,000
0
101,966
16,315
16.0
85,651
20.4
25
11500
74,151
74,151
2020E
381,896
12.9
121,135
31.7
18,000
103,135
1,300
24,500
0
126,335
25,267
20.0
101,068
18.0
26
12500
88,568
88,568
Balance Sheet
Y/E March
Equity Share Capital
Total Reserves
Net Worth
Minority Interest
Deferred Liabilities
Total Loans
Capital Employed
Gross Block
Less: Accum. Deprn.
Net Fixed Assets
Capital WIP
Goodwill
Investments
Curr. Assets
Inventory
Account Receivables
Cash and Bank Balance
L & A and Others
Curr. Liability & Prov.
Account Payables
Provisions
Net Current Assets
Appl. of Funds
E: MOSL Estimates
2013
1,036
148,862
149,897
16,351
-7122
2,072
161,197
56,026
24,421
31,604
5,626
24,870
24,116
113,420
25,778
27,108
40,587
19,948
38,439
15,752
22,687
74,981
161,198
2014
2,071
183,178
185,249
19,212
-9110
24,982
220,333
63,886
28,904
34,982
8,415
33,191
27,860
177,393
31,230
22,004
75,902
48,257
61,509
15,887
45,622
115,884
220,333
2015
2,406
253,826
256,232
28,661
-17516
77,827
345,203
130,369
60,617
69,752
20,386
57,073
27,163
297,403
56,680
53,123
109,980
77,619
126,574
59,198
67,376
170,828
345,203
2016
2,406
311,636
314,042
40,859
-21259
83,381
417,023
165,221
69,301
95,920
22,425
57,073
13,086
331,817
64,236
67,959
139,893
59,730
103,297
48,325
54,972
228,520
417,024
2017
2,399
363,997
366,397
37,909
-21780
80,910
463,435
154,369
79,335
75,034
15,648
104,165
9,610
329,537
68,328
72,026
151,408
37,774
125,739
73,469
52,270
203,797
408,254
2018E
2,399
383,231
385,630
47,909
-21780
58,073
469,832
179,369
90,994
88,375
17,212
104,165
9,610
384,764
69,106
52,797
222,571
40,290
134,295
74,184
60,111
250,470
469,832
(INR Million)
2019E
2,399
440,539
442,939
59,409
-21780
41,800
522,367
204,369
104,278
100,091
18,934
104,165
9,610
437,435
73,350
60,090
259,201
44,793
147,867
78,740
69,127
289,568
522,367
2020E
2,399
512,264
514,664
71,909
-21780
30,179
594,971
234,369
119,512
114,857
20,827
104,165
9,610
505,520
75,000
67,588
313,309
49,623
160,008
80,511
79,496
345,512
594,971
14 June 2017
11

Sun Pharma
Financials and Valuations
Ratios
Y/E March
Reported EPS
Cash EPS
BV/Share
DPS
Payout (%)
Valuation (x)
P/E
P/BV
EV/Sales
EV/EBITDA
Dividend Yield (%)
Return Ratios (%)
RoE
RoCE
RoIC
Working Capital Ratios
Fixed Asset Turnover (x)
Debtor (Days)
Creditor (Days)
Inventory (Days)
Leverage Ratio
Debt/Equity (x)
2013
12.4
13.8
62.3
2.2
17.5
37.1
8.6
10.9
25.0
0.4
25.6
28.8
45.2
3.9
88
276
84
0.0
2014
13.1
14.8
77.0
2.6
18.7
24.4
7.0
7.6
17.5
0.5
31.5
33.4
55.5
4.8
50
209
71
0.2
2015
18.9
23.8
106.5
4.3
21.8
27.2
5.0
4.5
15.9
0.8
21.5
22.7
37.8
5.2
71
321
76
0.3
2016
19.6
23.8
130.5
0.0
0.0
27.4
4.1
4.4
15.3
0.0
16.5
18.7
27.9
3.3
89
272
85
0.3
2017
28.9
34.2
152.3
6.0
21.5
20.5
3.5
4.0
13.8
1.1
18.5
19.4
24.6
3.5
87
330
82
0.2
2018E
25.4
30.8
160.3
6.0
23.7
21.1
3.3
3.8
14.6
1.1
16.3
16.5
21.3
3.6
65
321
85
0.2
2019E
30.8
36.6
184.1
6.0
19.7
17.4
2.9
3.1
11.4
1.1
17.9
18.8
29.2
3.6
65
321
79
0.1
2020E
36.8
44.3
213.9
6.0
16.7
14.6
2.5
2.6
8.2
1.1
18.5
19.8
34.0
3.6
65
321
72
0.1
Cash Flow Statement
Y/E March
OP/(Loss) bef. Tax
Int./Dividends Recd.
Direct Taxes Paid
(Inc)/Dec in WC
CF from Operations
(inc)/dec in FA
Free Cash Flow
(Pur)/Sale of Invest.
CF from investments
Change in networth
(Inc)/Dec in Debt
Interest Paid
Dividend Paid
CF from Fin. Activity
Inc/Dec of Cash
Add: Beginning Balance
Closing Balance
Note: Cashflows do not tally due to acquisition
2013
43,227
3,727
-10,379
-2,336
34,239
-22,501
11,737
-1,987
-24,488
4,334
-668
-443
-6,058
-2,835
6,915
33,672
40,587
2014
44,083
6,282
-9,010
-5,589
35,767
-18,580
17,187
-3,745
-22,324
6,674
22,910
-442
-7,270
21,872
35,315
40,587
75,902
2015
74,820
6,946
-17,553
-20,865
43,348
-82,570
-39,223
698
-81,872
37,513
52,845
-5,790
-11,964
72,605
34,080
75,902
109,982
2016
72,709
9,848
-13,092
-27,780
41,685
-38,341
3,344
14,077
-24,264
11,705
5,554
-4,769
0
12,490
29,911
109,980
139,892
2017
87,751
19,374
-12,637
36,239
130,726
-32,077
98,650
3,476
-28,601
-12,116
-2,471
-3,998
-16,843
-35,428
66,697
139,893
206,590
2018E
76,663
23,000
-12,549
24,490
111,604
-27,906
83,698
0
-27,906
-25,037
-22,837
-3,000
-16,843
-67,717
15,981
151,408
167,390
(INR Million)
2019E
92,966
25,000
-16,315
-2,468
99,184
-27,437
71,746
0
-27,437
0
-16,273
-2,000
-16,843
-35,116
36,630
222,571
259,201
2020E
121,135
24,500
-25,267
-1,837
118,531
-34,659
83,872
0
-34,659
0
-11,621
-1,300
-16,843
-29,764
54,108
259,201
313,309
14 June 2017
12

Sun Pharma
NOTES
14 June 2017
13

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Sun Pharma
Disclosure of Interest Statement
Analyst ownership of the stock
No
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No
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