Buy Sun Pharmaceutical Industries; target of Rs 579: Khambatta Securities
Khambatta Securities’s research report on Sun Pharmaceutical Industries
Sun Pharmaceuticals Ltd. (Sun Pharma) total income increased 7.1% q-o-q but decreased 19.4% y-o-y to Rs 66,503 mn in 2Q FY18, falling short of our expectations for the quarter mainly due to loss in business from US market due to pricing pressure and absence of 180 days exclusivity for Imatinib which expired in July 2016. Adjusted EBITDA increased 25.6% q-o-q but decreased 56.6% y-o-y to Rs 13,756 mn during the quarter. Adjusted EBITDA margin increased 304 bps q-o-q but decreased 1,771 bps y-o-y to 20.7% during 2Q FY18, exceeding our expectations for the quarter mainly due to lower than expected Cost of Goods Sold, employee benefit expense and other expense as a percentage of revenues.
We value the business at 25.0x (which is within Sun Pharma’s 3 year P/E range of 12.2x – 38.3x) FY 2019E adjusted diluted EPS of Rs 23.2, arriving at a share price of Rs 579 generating 14.8% potential upside from current levels. Hence, we upgrade our rating for Sun Pharma common stock to ‘Strong Buy’.
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