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Systematix Research Report
Sun Pharmaceutical Industries Ltd.'s reported revenues and net earnings were inline. Revenue and net earnings expanded 11.3% and 5% respectively.
Net earnings growth was lower than revenue growth as research and development spend expanded materially (14% QoQ and 35% YoY). In addition, company also had an extraordinary expense of Rs. $6 million during the quarter.
During the quarter contribution from gRevlimid in revenue was not material and hence the reported earnings reflect core sustainable earnings.
Revenue was primarily driven by branded portfolio (India, specialty and Emerging Markets). The key products in specialty portfolio (Ilumya, Cequa and Winlevi) continued to expand QoQ.
The growth in the portfolio should sustain as Sun Pharma continues to generate new clinical data on its core drugs to support growth, and also launch in new geographies.
We retain our forecasts on Sun Pharma, but revise our target valuation multiple to 27 times to arrive at a price target of Rs 1,290.
We upgrade the stock to 'Buy' from 'Hold'. The higher valuation multiple reflects the strength of base earnings, potential of meaningful margin expansion, option value of its complex generic pipeline and inorganic growth which is currently not captured in our forecasts.
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