Most analysts maintained their stance on Sun Pharmaceutical Industries Ltd. after September quarter results of India’s largest drugmaker met estimates, aided by higher-than-expected sales in domestic business.
Operating income rose 16.7 percent to Rs 1,789.8 crore, higher than analyst expectations, due to lower research and development, and marketing expenses.
In a conference call after its earnings, Sun Pharma said that its other operating income was also higher due to out-licensing of Ximino, an acne medication.
Key Highlights Of Sun Pharma’s Conference Call
- Other expenses were higher due to branding and promotional spends.
- Material costs higher due to higher cost of goods sold for Taro.
- Expect higher R&D spending for specialty pipeline.
- No further erosion in the base business for U.S.
- Base erosion of 5 percent impacted U.S. portfolio.
- Seasonality in Levulan and Absorica led to the decline in speciality.
Here’s what brokerages had to say about Sun Pharma’s Q2 Results 2019-20:
Emkay
- Maintains Hold; hikes target price to Rs 490 from Rs 465 apiece.
- Q2 Ebitda above as R&D and advertising costs remained largely flat QoQ.
- India growth positively surprised but base U.S. sales, excluding Taro, was weak.
- Pick-up in specialty business key in raising earnings trajectory.
PhillipCapital
- Maintains Neutral with target price of Rs 450 apiece.
- Q2 earning performance was in line.
- See earnings challenges led by staggered penetration of specialty portfolio, continued higher specialty promotional spend, increasing R&D, and continued pricing issues in the U.S.
- No near-term benefit from its strategic initiatives.
Morgan Stanley
- Maintains Overweight, hikes target price to Rs 530 apiece from Rs 505 apiece.
- Q2 bear, base business appears stabilised.
- Base business appears on course for delivering on positive operating leverage in coming quarters.
- Constructive on specialty business, remains top pick.
Edelweiss
- Maintains Reduce with target price of Rs 380.
- India boost, Pola acquisition, and lower R&D stabilise earnings.
- Medium-term earnings growth will be challenging, given Ilumya’s slow uptake, non-recurrence of one-off sales and increase in R&D spend and tax rate.
HSBC
- Maintains Hold with targe price of Rs 425 apiece.
- Q2 results largely in-line at operating level; global specialty sales largely flat QoQ.
- Cost pressure to continue in view of ongoing spend for specialty drugs.
- Execution of specialty launches remains key for sustainable earnings growth.
Prabhudas Lilladher
- Maintains Reduce with target price of Rs 396 apiece.
- U.S. disappoints in sales and gross margins.
- Growth of India formulations in H2FY20 could be lower.
- Valuation remains challenging and one of the highest among its peers.
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