No Sun signs for investors, stock likely to stay underperformer | Economic Times

ET Intelligence Group: The March quarter earnings of India’s largest drugmaker Sun Pharmaceutical failed to provide concrete direction to investors at a time pharma is the flavour of the season. While the topline met Street estimates, profits didn’t match up to expectations.The management has broken with the tradition of providing guidance for the fiscal year due to the current uncertainties.One-offs, provisioning for litigation settlement and forex loss mean the Q4 results do not remain strictly comparable with the same quarter last year. Consolidated revenue climbed 15 per cent for the quarter. Net profit dropped 37 per cent and Ebitda margins stood at 15.5 per cent. The Street was working with a 40 per cent likely increase in net profit and Ebitda margin of 21 per cent. 76055126While the company estimates some softening of sales in the near term due to the lockdown and stocking up by customers, it isn’t in a position to quantify the impact. The management’s focus is to ensure business continuity and maintain supplies despite the lockdown challenges across its markets.Sun Pharma is working on digital engagement with doctors, ensuring optimum utilisation of factories, working with vendors to continue supplies uninterrupted, enabling work from home for employees, focusing on cash collection and cash preservation, controlling costs, improving efficiencies across businesses and finding ways to reduce overall debt.The India business revenues, adjusted for one-off impact in the base quarter, increased by 8 per cent. India business constituted nearly one-third of the overall revenues. Amid Covid, Sun has managed to improve its market share for the Q4 to 8.4 per cent of the total market, helped by strong brand equity in the chronic segment. Its acute therapy portfolio has suffered. In the past two months, the company has reached out to doctors digitally but now its field force has started visiting clinics.Its specialty business in the US did see traction, with flagship brand Ilumya garnering annual sales of $94 million in its first full year of commercialisation. The specialty business revenues in the US have grown over the December quarter, despite the seasonal decline that was expected in certain drugs.While the company is incurring high expenses on the specialty business, the management believes that the business will be able to absorb these costs as it ramps up. Specialty R&D accounted for a quarter of the research and development spend of 536 crore for the quarter.Sun’s generic pipeline stands at 98 ANDAs awaiting approval in the US. However, the pricing pressure on the US generics continues unabated. Its subsidiary Taro has been underperforming in the recent quarters.The key growth drivers for the company for FY20 include India, global specialty business, growth in rest of the world and active pharmaceutical ingredient business. For investors, the company is in a ‘work in progress’ mode. The Sun Pharma stock has been an underperformer in the pharma sector and is likely to remain so for now.