Sun Pharma Q4 profit at Rs 888 crore; Ranbaxy merger hurts

MUMBAI: Sun Pharma’s profits shrank 44% in the March quarter and its margins crashed as prices fell and India’s biggest pharma player by market value absorbed the impact of the merger of former rival Ranbaxy Labs.

Post the Q4 results, CLSA maintained a 'Buy' on Sun Pharma and set target price of Rs 1,130.

Q4 FY15 impacted by various one-time charges, CLSA said.

It also reduced FY16 EPS estimate for the pharmaceutical company by 10%.

BofA-ML too cut target price for Sun Pharma to Rs 1,063 from Rs 1,100 and maintained 'Neutral' call on the company.

The brokerage firm also cut FY16/17 EPS by 6%/4% on Ranbaxy consolidation.

USFDA issues at Halol is still an overhang, it added.


Mumbai-based Sun, whose promoter Dilip Shanghvi strode past Mukesh Ambani of Reliance Industries to become the richest Indian a few months ago, posted a net profit of Rs 888.05 crore in the March quarter. The figure is well below Bloomberg’s estimates of a profit of Rs 1,750 crore. Sun shares rose 1% ahead of the announcement as investors anticipated better earnings.

Shanghvi Still the Richest with Rs 1,32,410-cr Wealth

Shanghvi continues to be the richest Indian as of Friday with total promoter wealth of Rs 1,32,410 crore, ahead of Ambani’s Rs 1,28,612 crore.

On Friday, Shanghvi blamed the performance on one-time charges caused by the Ranbaxy merger, price erosion and supply constraints caused by remedial action taken in some of the plants. “We are pledged to being 100% compliant and are fully responsible towards our customers and patients across the world who rely on us for quality products,” he added.

Sun’s shares may come under a bit of pressure on Monday as investors digest the impact of the earnings on the stock, which has corrected significantly after hitting a life high earlier this year. “The stock may have a negative opening on Monday but I don’t expect a sharp decline because the stock has already corrected 23% from its recent highs. The numbers were disappointing, but we expect this to be a one-quarter phenomenon as the large part of the accounting of Ranbaxy merger has been taken into consideration,” said G Chokkalingam, founder, Equinomics Research & Advisory.

Shares of Sun ended 1.05% higher at Rs 965. About 4 lakh shares were traded on Friday, which is higher than the two-week average of 3.2 lakh shares. The shares have surged 64% in the past year, and have outperformed the Sensex that has gained 16.6% over the same period. Sun reported sales of Rs 6,145 crore compared with Bloomberg estimates of Rs 7,500 crore. Consolidated operating margins were 14.5% against 44.4% in the year-ago period.

Analysts were still trying to understand the earnings as the format was different, said one analyst who did not want to be quoted.

Sarabjit Kour Nangra, V-P, research (pharma) at Angel Broking, said the EBITDA as well as net profit of the company were adversely impacted by a few items relating to professional charges and harmonisation of policies of erstwhile Ranbaxy.

The impact of these items appearing above EBITDA was approximately 10% of net sales and on items appearing below EBITDA was approximately 7% of net sales, Nangra added. Sun Pharma said consolidated R&D expense for the fourth quarter was Rs 579 crore, or 9.4% of sales. For the full year, R&D spend was Rs 1,955 crore at 7.2% of sales. Nangra said if the R&D spends were adjusted, the margins would have been healthier.

“The R&D expenditure during the quarter was 9.4% of sales versus 7.1% of sales in 4QFY2014. Thus adjusted for the same, the margins were closer to 24.3%, still lower than expected.”