Higher contingent liabilities and cash taxes continue to be a drag on Sun Pharmaceutical Industries Ltd.'s growth outlook, according to a Credit Suisse report.
Earlier, Sun Pharma had declared in its annual report that the company expects a single-digit decline in consolidated revenue for financial year 2018.
Also Read: Sun Pharma Sees Single-Digit Decline In Revenue For FY18
The drug maker's managing director had said in the annual report that Increased competitive intensity and customer consolidation was leading to pressure on pricing; while continued delay in approvals from the Halol facility was also impacting the company's working, according to a report by newswire PTI.
Key Positives
Weakness in U.S. sales, excluding that in Taro, was only at the company level, while its subsidiaries-DUSA, URL, Pharmalucece and Ranbaxy have done well in the U.S. market, said Credit Suisse. The brokerage report pointed out only one positive disclosure in the pharma major's annual report that the subsidiaries have grown year-on-year.
Key Negatives
DUSA, URL, Pharmalucece and Ranbaxy doing well in U.S. validates that the problem is at Sun's level.
Following could be the key issues, according to Credit Suisse, impacting business at Sun's level in U.S.
- higher-than-expected Gleevec competition
- a sharp decline in Injectable sales as company is still in process of implementing remediation steps for U.S. FDA's observations for the Halol plant
- a higher-than-expected buyer consolidation impact at Sun.
Ranbaxy's growth in India, although, is only a mid-single digit figure, said Credit Suisse. Sun Pharma, too, continues to under perform in India, Credit Suisse added.
In the Indian market, there is uncertainty amongst the trade channels due to the GST (Goods and Services Tax) implementation, although it may be temporary. Given these factors, growth could be a challenge in FY18 and we expect a single-digit decline in consolidated revenues for FY18 over FY17.Dilip Shanghvi, Managing Director, Sun Pharmaceutical said in its annual report
Credit Suisse points out multiple negatives in the pharma major's annual report.
- Sharp increase in contingent liabilities
- Cash taxes significantly higher than profit and loss taxes for three consecutive years
- Sun pharma'a domestic growth continues to be in the weaker range of 10-11 percent after Ranbaxy's acquisition as opposed to its trend of "high-teens growth"
Sun Pharma had de-merged Sun Global FZE in 2014 and transferred a part into a standalone company as a result of which its profit and loss taxes lowered, thereby increasing its contingent liability, noted Credit Suisse.
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