Sun Pharma top Sensex gainer; share price spikes 7% post Q4 FY18 results

Sun Pharma share price rallied nearly 7 per cent on Monday after the pharma major on Friday reported a rise of 6.96 per cent in its consolidated net profit for the quarter ended March 31, 2018 against Rs 1,223.71 crore reported for the corresponding quarter of previous fiscal year.

Reacting to the numbers, the stock gained as much as 6.84 per cent to Rs 498.50 on the BSE even as brokerages maintained neutral to reduce rating on the stock.  

Brokerage PhilipCapital believes Sun Pharma's FY18 performance as well as its growth guidance is just in line with expectations. "Hence, we retain our FY19/FY20 earnings estimates at Rs 20.1/26.1 intact, which factors clearance of its Halol plant," the brokerage said in a results review report.  

But the brokerage remained concerned about the continued margin underperformance by Taro, enhanced spends on specialty business and Sun Pharma’s larger dependency on US operation which is facing massive competitive pressure.

"We Maintain Neutral rating on Sun Pharma with unchanged TP of Rs 525, i.e., 20x FY20 EPS," said the brokerage. 

Meanwhile, the company's management guided for low double digit growth in revenues with 8‐9 per cent of R&D expenditures (mainly for specialty portfolio) in FY19E. It also cautioned of significant cost push (promotion and marketing) of launching three branded specialty products in FY19E. 

"Expecting headwinds in US generics, Sun Pharma guided for launch of generics with limited competition in FY19E. The stock trades at PE of 26.6x and 24.1x of FY19E and FY20E. We believe that the valuation remains stretched, we maintain ‘Reduce’ and retain TP at Rs 447," said Prabhudas Lilladher. 

For the full financial year, the pharma major's consolidated net profit declined by 68.96 per cent to Rs 2,161.55 crore from Rs 6,964.37 crore reported for 2016-17.

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"Our Q4 performance is in-line with our guidance. Over the last four quarters, we have been able to record a gradual improvement in performance despite a challenging US generic pricing environment," said Dilip Shanghvi, Managing Director, Sun Pharma, commenting on the financial performance. 

"FY19 will mark the crossing of some important milestones in our specialty journey with the likely launch of 3 specialty products in the US - Ilumya, OTX-101 and Yonsa - which will entail upfront investments. We are also planning to conduct additional clinical trials for a new indication of Ilumya. We will continue to evaluate opportunities in the specialty segment to further enhance this business," he added.