Don't fall for Q2 shine blindly to pick stocks. Here's why | Economic Times

ET Intelligence Group: Even as investors were getting edgy about the under-performance of the country's largest pharma company, Sun Pharma enthused them with a smart jump of 49% in adjusted net profit — not seen in the past seven quarters. Sequential improvement in performance, lower expenses, repayment of debt and recovery in specialty business sales in the US were the highlights of Sun's performance for the quarter to September.The better than expected profitable growth led to the stock closing up over 3%. However, the growth in India and US businesses — each accounting for a third of consolidated sales — has been in single-digits. The growth in API sales has got rationalised compared to the preceding June quarter. Domestic business sales grew just under a percent. While the chronic portfolio grew in high single digits, the acute segment recorded decline, albeit at a lower rate than the June quarter. The doctor call rates have improved significantly compared to the preceding quarter and the management expects better growth in the current quarter. Specialty drug sales in the US are back to pre-covid levels. The company has gained market share despite challenging pandemic conditions. The moot question for investors is whether the profitable growth achieved in the second quarter is sustainable. Product mix and cost optimisation led to savings on raw material costs. Reduced marketing and sales cost and lower traveling costs led to the lower other expenses. To be sure, some of these expenses like marketing and traveling costs are likely to go back to the pre-covid levels as the company improves its doctor call rates and reaches out.79027894With the company's focus on specialty business, the investment in R&D is likely to continue till the company becomes a meaningful-sized global specialty drugmaker.Sun Pharma stock has been one of the worst performing one for the past one year. Second quarter show should not be the main influencer for investment decisions on the stock. Instead factors such as ramp up of sales in specialty drugs, lowering of the debt burden, stronger cash flows, drug pricing trend in the US, any significant drug launches, resolution of the Halol plant issue and post Covid recovery in domestic business should be the important determinants going ahead.