What Does Sun Pharma's September Quarter Performance Indicate?

Sun Pharma continued with its trend of logging strong performance in the September quarter - thanks again to the two one-off items i.e. sales of oncology drug Lipodox in the US and favourable currency movement. With Caraco resuming manufacturing at its facilities in Michigan, the company is likely to gradually recover any loss in revenues.

There are nevertheless two concerns that stand out from the company's performance in the quarter. One is pertaining to the Rs 584 crore provision made towards potential damages in respect of patent infringement litigation related to generic version of Wyeth's drug Protonix. And the second is related to the early signs of weakness in Taro's performance - in the form of declining volumes.

However, even before Taro's performance starts waning, the company has in its latest acquisition - Dusa - another growth driver in the dermatology space in the US. While not offering any synergy with Taro's dermatology business, Dusa has a patent protected drug-device treatment for curing skin lesions. The US alone has over 5 million such treatments per year with Dusa having 5% share of it. A drug-device combination is difficult to copy for a generic company.

With a stellar performance in the first half of this fiscal, the company has increased its revenue guidance for the fiscal year from 18-20% to 30-32%. With the company's stock trading near its record high, most of the performance-related positives have been factored into. However, the next inorganic route adopted by the company shall hold the surprise for the company's investors. The company has already passed an enabling resolution of raising Rs 8000 crore to generate funds for any big acquisition that it might do in the future.