Stock Market Result Update on Sun Pharma for 2QFY2012

Stock Market Result Update on Sun Pharma for 2QFY2012 with a Buy recommendation and a Target Price of `569 (12 months).

Sun Pharma reported higher-than-expected 2QFY2012 performance. Net sales reported 38.3% yoy growth. Net profit grew by 18.7% yoy, driven by higher-than-expected improvement in OPM. We recommend a Buy rating on the stock.

Better-than-expected results: For 2QFY2012, Sun Pharma reported net sales of `1,895cr, up 38.3% yoy, mainly driven by the inclusion of Taro’s financials as well as strong growth in overall exports. The company’s OPM expanded to 41.4% in 2QFY2012 from 34.1% in 2QFY2011. Gross margin increased to 80.8% in 2QFY2012 from 75.4% in 2QFY2011. The improvement in OPM was higher than gross margin improvement because of lower other expenses during the quarter. Net profit during the quarter reported 18.7% yoy growth to `598cr.

Outlook and valuation: Sun Pharma is one of the largest and fastest growing Indian pharmaceutical companies. Management has guided for 28–30% top-line growth for FY2012. Growth reported during the year can also be attributed to the consolidation of Taro’s financials. Management’s guidance for FY2012E includes all growth aspects from Taro as well. We expect Sun Pharma’s net sales to post a 27.3% CAGR to `9,272cr and EPS to register a 21.4% CAGR to `25.9 over FY2011–13E. We recommend a Buy rating on the stock with a target price of `569.

Stock Market Result Update on GlaxoSmithKline Pharma for 3QCY2011

Stock Market Result Update on GlaxoSmithKline Pharma for 3QCY2011 with a Neutral recommendation.

GlaxoSmithKline Pharma (Glaxo) reported its 3QCY2011 results, which were below our estimates on the top-line and PAT fronts. The company’s OPM for the quarter came in at 29.0%, lower than our estimate. We continue to maintain our Neutral view on the stock.

Operating performance below estimates: For 3QCY2011, Glaxo reported 4.4% yoy growth in its net sales to `608cr, lower than our estimate of `643cr. The company’s gross margin came in at 60.0%, lower than our expectation of 63.2%. This led to OPM of 29.0%, below our estimate of 32.4%, for 3QCY2011. During the quarter, Glaxo reported a 7.7% yoy dip in its net profit to `146cr, below our expectation of `162cr, due to lower-than-expected OPM.

Outlook and valuation: We expect Glaxo’s net sales to post a 13.9% CAGR to `2,788cr and EPS to register a 14.6% CAGR to `86.9 over CY2010–12E. At current levels, the stock is trading 27.5x and 22.8x CY2011E and CY2012E earnings, respectively. We continue to maintain our estimates and, hence, remain Neutral on the stock.

Stock Market Result Update on Ranbaxy for 2QFY2012

Stock Market Result Update on Ranbaxy for 2QFY2012 with a Buy recommendation and a Target Price of `577 (12 months).

Ranbaxy reported a lower-than-expected performance for 3QCY2011. While the company’s top line was more or less in-line with our expectation, its bottom line came in much lower than our expectation on the back of below-expectation OPM. The company’s OPM during the quarter dipped to 5.0% vis-à-vis our expectation of 6.7%. Management is optimistic of monetizing Lipitor and other key FTFs in the US. We recommend Buy on the stock.

Lower-than-expected performance: Ranbaxy reported net sales of `2,023cr, up 7.4% yoy and just in-line with our estimate of `2,143cr. Gross margin also came just in-line at 58.2%, lower than our estimate of 60%. Ranbaxy reported OPM of 5.0%, which was lower than our estimate of 6.7% for the quarter. This along with forex loss of `613cr led to loss of `400cr during the quarter. 

Outlook and valuation: The stock is trading at EV/Sales (ex. FTF) of 2.2x CY2011E and 1.7x CY2012E. We recommend Buy on the stock with a revised target price of `577, valuing the base business at `483 at 2.2x CY2012E EV/Sales and attaching `95/share for Para IVs.