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Sun Pharma Ltd. result update for Q3FY19

Sun Pharma Ltd. result update for Q3FY19

Sun Pharmaceutical is 5th in the speciality generic segment globally and one of the top pharmaceutical company in India. With patients spread across 150 countries globally. They have 42 manufacturing facilities spread across 6 continents. Moreover, Sun Pharma in Emerging Markets covers over 100 markets and 6 markets in Western Europe. According to the Global Consumer Healthcare business, Sun Pharma is ranked amongst top 10 across 3 global markets.

Key Takeaway:

  • Sun Pharma reported 286.1% YoY surge in the Net profit, it stood at Rs. 1,241.85 crores.
  • Prices of the generics segment have imparted stability in this quarter.

Financial for the year 2017-18:

Taro and API sales led to surge in the revenue in Q3FY19:

The total revenue from operation in Q3FY19 grew by 16.3% at Rs. 7,654 crores as compared to Rs. 6,653.23 crores in Q3FY18 the growth in revenue was led by Taro and API sales along with this the gross margins increased by 210bps at 23.1%. Gowth in gross margins was due to the reduction in employee cost and GM expansions. Staff cost was 19.5% of the sales in Q3FY19.

Segment Performance:

India’s Business: Revenue from branded formulations in India in this quarter stood at Rs. 2,235 crores up by 7% YoY. The company launched 20 new products in India during this quarter.

US Formulation: Revenue in the US in Q3FY19 stood at USD362 million it grew by 10.3% YoY driven by Taro sales as it grew by 14% YoY due to increase in the volumes. Along with this Taro reported Q3FY19- revenue increased by 13% YoY at US$ 176 million. Although, the US revenue reported by the company was flat (excluding Taro business) in this quarter.  Apart from this Sun Pharma’s Speciality portfolio- Company launched Xelpros in Q1FY19 which had flat revenue growth in this quarter. Illumya was commercialized in the October 2018 and prescribed by 800 doctors. The US generics business did not see any broad base improvement in pricing but they have imparted some stability as earlier the prices were in a downtrend.

Emerging Markets: Revenue from emerging markets accounted for US$ 203 million, it grew 8% YoY. The revenue was subdued due to the unfavorable currency fluctuation in certain areas.

Rest of the world (ROW): excluding the US market and emerging markets the ROW revenue stood at US$ 125 million up by 4% YoY.

Active Pharmaceutical Ingredients (API) segment: API segment revenue increased by 15% YoY stood at Rs. 426 crores.

EBITDA

 EBITDA in this quarter increased by 48.1% YoY at Rs. 2,069 crores against Rs. 1,453.4 crores in Q3FY18. EBITDA Margins stood at 27.8% the growth was partly driven by forex gains which includes Taro exchange impact. EBITDA Margins were highest in the last eight quarters.

Profit after Tax (PAT)

Net profits surged by 286.2% YoY, it stood at Rs. 1,241.85 crores Vs Rs. 321.57 crores on Q3FY18. The adjusted Net profit stood at Rs.1, 212 crores up 49% YoY after adjustment of Q3FY18 net profit for the onetime charges of US tax loss.

  1. The Research and Development (R&D) investment in this quarter realized to Rs. 465 crores i.e. 6.1% of the sales against Rs. 473 crores in the corresponding previous year it was 7.1% of the total revenue. Furthermore, R&D expenses incurred by the company in this quarter was realized at Rs. 465 crores i.e. 6.1% of the total sales as compared to Rs. 473 crores in Q3FY18.

 

Con-call Highlights:

Clarification on SEBI’s queries on whistle blower’s complaint.

 The transaction with Aditya Medisales- It earns EBITDA margins of 1.4% from Sun Pharmaceutical on account of distributing the products in India. Net margin gained from Sun Pharma is at 0.4%, it includes dividend income earned on account of equity holding in Sun Pharma.  Also, The Company will be transitioning its domestic formulation business to wholly owned Sun pharma’s subsidiary by Q1FY18.

On an account of Atlas transaction, Sun Pharma clarified that they had provided a loan to Atlas on 2 occasions:

  1. In FY15 temporary loan was provided to consumer transaction of USD400 million as they needed some time to raise capital from the debt market. Further Atlas repaid the loan in FY16 after fund raising from a global bank.
  2. Sun Pharma provided a loan of USD 300 million in FY18 due to the supply obligation as Sun Pharma was under obligation due to GMP issue in Halol facility. Unwinding of of the atlas transaction will result in the assignment to the supply contract to one of the Sun Pharma’s wholly owned subsidiary and further atlas will move out of the transaction. By FY19 USD 300mn loan will get squared off under unfulfilled obligations.
  • Sun Pharmaceutical informed that they won’t be launching the NDA product Elepsia even though they received the USFDA approval. Further, they will return the license to SPARC – Sun Pharmaceutical Advanced Research Company Ltd. The launch was rejected in the US due to the high cost of setting up CNS course
  • During this quarter the input cost was higher primarily due to higher RM cost at Taro. Further higher write back accounted to certain provisions made in the previous quarter this year
  • The staff cost accounts to 19.5% of the sales. Whereas other expenses was 25.2% of sales. Material cost was 28.3% of the sales. The expenses were sequentially were lower on a YoY basis. The improvement was due to better top line growth and growth in product mix of the company.

Taro (Sun Pharma’s Subsidiary) Q3FY19 Result:

  • The revenue grew by 13% YoY stood at US$176.4 million. The growth was driven by strong demand and price stability in the US market. The revenue growth was after 8 quarters decline.
  • The net profit in Q3FY19 accounted to US$ 93.6 million against USD 16 million in Q3FY18. The tax rate in Q3FY19 was higher due to the impact of re-measurement of estimated deferred tax assets in December 2017 results of Tax cuts and Jobs Act.
  • Taro reported forex gains of USD 31 million as compared to USD 3.7 million in Q3FY18. In Q2FY19 the company reported forex loss of USD 6 million. The forex gain was due to strengthening of the US dollar against the Canadian dollar.
  • EBITDA Margins increased by 510bps on a YoY basis stood at 47.5%. The increase in the margins was due to reduction in R&D expenses by 290 bps and SG&A expenses fell by 50 bps.
  • The company received three ANDA approvals from the USFDA this quarter. They are Minoxidil Topical Aerosol, Tretinoin Cream USP (0.01%), and Tretinoin Cream USP (0.05%). They have overall 27 ANDA waiting in their pipeline which includes 8 tentative approvals in Q3FY19.

Future Expectation:

  1. The company aims to launch Cequa (Cyclosporine ophthalmic solution) in the US in the coming quarters. They received USFDA approval for this drug in August 2018.
  2. The company has guided that there will be an increase in the tax rates from FY20.
  3. Sun Pharma expects to receive cash of USD 375-380 million from their Taro business as they announced a dividend of USD 500 million. The cash receivable will be used for debt re-payment partly.
  4. The company expects to end the FY19 R&D spends estimates of 7-7.5% of the overall sales. They also expect higher R&D spends next year due to the clinical trial expenses related to new indications of Illumya and other products.

Q2FY19 Results, Sun Pharma posts 218.8 cr net loss

 

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