Sun Pharma gains from rupee fall, lower competition in US

Currency depreciation and low competition in the US were the key reasons for the exceptionally strong performance of Sun Pharmaceutical Industries in the first quarter, Nomura Equity Research said in a post-earnings report.

It further reported that all business segments recorded strong performances with the US recording the maximum growth. US growth was mainly driven by subsidiary Taro, Lipodox, Stalevo exclusivity and Cardizem.Stalevo would, however, face competition post the exclusivity period.

The gross margins were 79-80 percent excluding Lipodox. Sun’s strong balance sheet also provides incentives for potentially accretive mergers and acquisitions which could act as a performance leveler. However, the management is likely to be prudent and unlikely to take on significant risks in Normura’s view.

[caption id=“attachment_416421” align=“alignleft” width=“380”]  Reuters. Suns strong balance sheet also provides incentives for potentially accretive mergers and acquisitions.[/caption]

Further domestic growth remains strong, registering a growth of 20 percent year on year. This growth is mainly due to the excess sales in fourth quarter of 2012 which is being absorbed in the first quarter of 2013.

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Going forward the sales is expected to normalize. Sun’s domestic growth is one of the strongest in the industry.

Weak rupee besides spike in prices by Taro and supplies of Lipodox to the US was also cited as one of the factors responsible for first quarter performance by Deutsche Bank.

Despite Taro’s disclaimer that the sharp price hike would reverse, it recorded a sharp growth driven by price hike on other products. Sun Pharmaceuticals acquired Taro in September 2010 and currently owns 63 percent of the equity.

Sun is expected to benefit from Lipodox sales at least until third quarter of FY2013 since J&J is expected to resolve its supply issues only by December, said JP Morgan citing news reports. Sun also announced that its domestic formulation business could be sold off to a wholly owned subsidiary company ‘Sun Resins and Polymers Pvt Ltd’.

The current price of stock is Rs 682.05 registering a year on year growth rate of 41.74 percent vis a vis the benchmark Sensex index which registered a growth rate of only 2.5 percent.