The management at Sun Pharma has indicated that sales in the current year could grow by about 13-15 per cent. That’s better than what was expected earlier and is probably because of benefits that it will get from selling a couple of products—Protonix and Ethyol---exclusively in the overseas markets. But it’s good news because the Rs 4,272 crore drug firm has been going through a bit of a rough patch in the US.
In October 2008, its subsidiary Caraco had been warned by the US drug authorities about some products made at its Detroit facility. In fact, a Citigroup report says “A longer than expected time for resolution of the FDA warning letter and associated product recalls also adds to the risk level in the business.”
Already, analysts are not too clear about exactly how profitable the sales from Protonix and Ethyol will be. Moreover, the impact of currency fluctuations is hard to determine---in the March 2009 quarter Sun posted forex losses. Nevertheless, the home market continues to see brisk business – sals in the March 2009 quarter were at their highest ever ---Rs 650 crore for finished dosages--but that was partly due to some changes in distribution policies.
Even adjusting for the changes though, revenues were strong and Sun’s market share is now estimated at around 3.5 per cent. At the current price of Rs 1,255, the stock trades at around 14 times estimated 2009-10 earnings.
That’s somewhat expensive despite the firm’s strong profitability vis a vis peers and the stock will probably get re-rated only after there’s some good news on the Caraco front and after the Taro acquisition is complete. At lower levels though, the stock is a compelling play on a strong Indian presence and the generics opportunity overseas.
