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Sun shines despite Taro’s underperformance

Despite a below par quarter at Taro Pharma, its US subsidiary, Sun Pharma managed to put in a good show for the June quarter. The company reported a 12% year on year growth in adjusted consolidated net profit to Rs 1,390 crore.

Reported profit is not comparable to year ago quarter as the company had a loss of Rs 1,276 crore due to a provision of Rs 2,517 crores towards settlement for patent infringement litigation related to generic versions of Protonix.

Taro, which has been Sun’s main revenue growth driver over the past few quarters, reported revenues of $ 130 million down 15% y-o-y for the quarter. Taro accounts for over a third of Sun’s revenues and 38% of Ebidta. The reason for the underperformance has been a higher price adjustment charge of $ 79 million as against $ 24 million charge in the year ago quarter.  Adjusted for the price adjustment impact, Taro’s revenues were up 18% year on year.

Taro Pharma has indicated that the benefits from the price adjustments or price protection charge are expected to commence from the current quarter.

Lower revenues and higher sales and general administration costs dented Taro’s Ebidta margins which at 44.9% are at a five quarter low. Taro’s FY14 margins have been at the 58% mark.

Given Taro’s numbers which came in last week, analysts had revised their consolidated numbers downwards from Rs 4,133-Rs 4,200 range to Rs 3,700-Rs 3,800 crore. Sun’s overall revenue came in higher at Rs 3,927 crore, up 13% year on year. Overall growth was led by non-Taro US sales which was up 20% year on year in dollar terms with market share gains in some products and over a high year ago base. US is a critical market for Sun Pharma and accounts for 58% of consolidated revenues.

The company continues its good performance in the India formulation business recording formulations sales of Rs 992 crore, up 17% over the year ago period. This is double the sector’s domestic growth of 8% in the quarter.

Boosted by a strong show the stock gained 2.4% to its 52-week high of Rs 802.70.

Sun Pharma has guided for consolidated sales growth of 15% for FY15 and this excludes gains from merger with Ranbaxy. A large part of this is likely to come from about its cumulative US portfolio of 358 abbreviated new drug applications (ANDA) of which 140 have been approved. The company had filed 14 ANDAs in the quarter of which 6 have been approved.

The company was also managed to maintain consolidated margins at 44%  with other expenses as a percentage to sales falling 410-432 basis points both on a year ago and sequential quarter basis.

On merger with Ranbaxy, the company is yet to get a clearance from competition authorities in India and the US as well as the courts. The company believes that there will be a $ 250 million savings from cost rationalisation and synergies in the merged entity.


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