)
Performance is built into the DNA of Sun Pharma. The company has consistently outperformed peers and the market and 2013-14 was no exception. Last year, the company added Rs 35,000 crore, or 44 per cent, to the wealth of its shareholders.
In the first nine months of the year, Sun's consolidated revenues were up 46.5 per cent while net profit was down 19 per cent. Profits were hit by a $550-million patent infringement settlement with Pfizer, yet Sun Pharma's share price rose steadily.
The company has been one the biggest beneficiaries of the rupee's depreciation, with its consolidated net profit growing 72 per cent year-on-year to Rs 1,800 crore during the quarter ended December. (LOOK, SUNSHINE)
While earnings will be volatile over two years due to Sun's vulnerability to price competition, analysts expect core earnings to remain strong.
Sun is likely to maintain its pace of growth, given its rising value share of the domestic drug market and strong presence in the US generics market.
It is the third-largest stand-alone drug company in India, behind Abbott and Cipla, and the fastest-growing generic company in the US, which accounts for 80 per cent of consolidated revenues.
After its recently announced merger with Ranbaxy, Sun will become the market leader in India by a wide margin and one of the country's top generic drug companies.
Ranbaxy also complements its product portfolio and footprint. Sun is strong in chronic and lifestyle therapies that provide higher margins, while Ranbaxy has a strong presence in acute therapies and over-the-counter drugs.
Sun has a controlling stake in Taro, one of the top generic drug makers in Israel. This has made it the largest Indian company in the US generic drug market with a rich product pipeline. A capable management led by Managing Director Dilip Shanghvi and sound strategy have helped Sun to sustain its profitability. With operating margins of 40 per cent, Sun generates more free cash flows than any of its peers. This provides it resources to launch products and grow through acquisitions. The company has bought 20 companies - the latest being Ranbaxy - in two decades and analysts expect the trend to continue.
Chairman Israel Makov says the Ranbaxy transaction allows Sun to build on Ranbaxy's global footprint and established product portfolio. "Since the product offerings are complementary, we expect to derive immediate synergies from the enhanced footprint across regions, and opportunities for brand-building and cross-selling. The combined business will also have a strong portfolio of products for chronic and acute (diseases) marketed globally."
Sun has a successful record of turning companies like Taro and URL. A Bank of America Merrill Lynch analyst says, "While we acknowledge Ranbaxy will likely have its own challenges, Ranbaxy's gross margins (63-64 per cent) are largely in line with Indian peers. Regulatory overhangs and high fixed costs have depressed Ranbaxy's profitability, where Sun Pharma can bring its operational strength."
