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Operating performance may hurt Sun Pharma’s Q3 profit: Poll

Sun Pharmaceutical Industries  will announce its third quarter earnings on Saturday. According to a CNBC-TV18 poll, net profit of the drug maker may rise 7 percent year-on-year to Rs 1,638 crore during October-December quarter, impacted by lower operating performance.

Revenue is seen climbing 13.1 percent to Rs 4,879 crore in December quarter from Rs 4,312 crore in corresponding quarter of last fiscal.

During the quarter, its US subsidiary Taro Pharmaceutical Industries had reported a 28.7 percent growth in bottomline and 11.3 percent growth in revenue.

Hence, analysts expect US business growth to be similar to second quarter (largely led by Taro) at 13-15 percent Y-o-Y. However, ex-US revenue may be weak as drugs such as Doxycycline could continue recording a decline. In Q2FY15, US Business was up 14.8 percent Y-o-Y to USD 481 million.

Domestic sales growth, however, is expected to be maintained at around 19-20 percent in Q3. In previous quarter (Q2), domestic formulations were steady with a growth 21 percent at Rs 1,154 crore Y-o-Y (constituted 23 percent of sales).

Analysts believe Sun Pharma could benefit from limited emerging markets currency volatilty during the quarter.

Revenue may also get benefitted from third party agreement. Sun entered into a supply agreement with a third-party (end of FY14) wherein it agreed to provide goods at a cumulative discount of USD 438 million. In lieu of the same, Sun received USD 400 million in upfront payments. The contract is not set to commence until Q2FY15 but the management has guided for some contribution in FY15. The commencement of the contract may provide a positive impact on revenues. Revenues related to the contract can be booked under both US and ex-US.

Operating profit (EBITDA) may increase 10.2 percent year-on-year to Rs 2,205 crore but margin may fall 120 basis points to 45.2 percent in Q3FY15.

Analysts feel the pharma major may surprise positively on margin front as Taro margin was above expectations at 67 percent in Q3 against 63.2 percent in the year-ago period. But that could be offset by higher operating costs on account of Ranbaxy transaction and remedial expenses (for instance on Halol plant).

In Q2FY15, other expenses shot up 37.4 percent to Rs 1,129.9 crore on yearly basis. Drug sales from likes of Doxil generic may also help operating profit margin during October-December quarter.

Key things to watch out for would be commentary on  Ranbaxy integration (received USFTC approval on condition of divesting one drug, received CCI approval on condition of divesting 7 products) and Halol plant.

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