Citigroup puts 'hold' on Sun Pharma

RESEARCH: CITIGROUP

RATING: HOLD

CMP: Rs 1785

Citigroup maintains `Hold’ rating on Sun Pharma with a target price of Rs 1,920. While Sun is entitled to 180 days exclusivity, thanks to the long delay in getting approval and full genericisation of the capsule form likely in January ‘11, the actual exclusivity may be shorter.

Citigroup expects this product to add about $38 million and about $26 million to Sun’s top line and PAT respectively. The long-awaited approval for Sun’s generic version of venlafaxine hydrochloride XR tablets has finally come through. Assuming 30% price erosion and 50% market share, Citigroup expects this product to add about $38 million and $26 million to Sun’s revenues and net income respectively during the exclusivity period.

This works out to a one-time upside of 5.7/share to FY11 earnings. This, along with shared exclusivity in generic Exelon, would provide some support to earnings over the rest of FY11 although they are unlikely to make up for the loss of sales from generic Protonix and Eloxatin. Citigroup believes the best is behind in terms of earnings momentum and does not expect valuations to materially re-rate from current levels.