Sun Pharma should be able to maintain onto its PE multiples in the years ahead: Mayuresh Joshi
Sun has a strong franchise and the EBITDA margins should be able to be maintained at around 40-42-44%.
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| Updated: In a chat with ET Now, Mayuresh Joshi, VP, Institution, Angel Broking shares his views on Sun Pharma:
ET Now: Most of the brokerages are of the view that Sun Pharma’s FY14 EPS because of this one-time payout will take a hit of about 2.5% to 3% which translates into a Rs 30 to Rs 40 stock price cut. After today's price adjustment, will you be a buyer in Sun Pharma?
Mayuresh Joshi: Our view has been positive on the pharma sector overall. Coming to the news on Sun Pharma specifically yesterday, yes it is detrimental to Sun Pharma because the kind of cash they were sitting on, it is a huge payout that even the management had not expected. Their own expectation was 100 million to be kept aside in terms of this litigation and it is far far ahead of their own estimates but in my opinion, Sun has a niche portfolio with it,some of the niche drugs that Sun has which have high margin probabilities in the US markets. Again, the rate at which Sun is growing, at almost 20-30% of a CAGR basis is incremental EPS accretive for the stock. The US markets also will account for almost a 25% to 30% growth for Sun Pharma in the years ahead. So our own expectations are that the niche products that the company has in the US markets almost 142 ANDA filings, obviously also aid its support for the earnings going forward and its domestic portfolio as well. In ophthalmology and other segments also augur well for the stock. So yes detrimentally, the stock might correct today by 5-6% possibly but going forward if one has a sectional view, Sun has a strong franchise, its European subsidiary also should do well in the US market especially in the dermatology segment and the EBITDA margins should be able to be maintained at around 40-42-44%. So in my opinion if Sun declines, it becomes a good opportunity for investors to start accumulate that stock and keep a structural view. Sun will have decent cash flows going forward and it should be able to maintain onto its PE multiples in the years ahead.
ET Now: Most of the brokerages are of the view that Sun Pharma’s FY14 EPS because of this one-time payout will take a hit of about 2.5% to 3% which translates into a Rs 30 to Rs 40 stock price cut. After today's price adjustment, will you be a buyer in Sun Pharma?
Mayuresh Joshi: Our view has been positive on the pharma sector overall. Coming to the news on Sun Pharma specifically yesterday, yes it is detrimental to Sun Pharma because the kind of cash they were sitting on, it is a huge payout that even the management had not expected. Their own expectation was 100 million to be kept aside in terms of this litigation and it is far far ahead of their own estimates but in my opinion, Sun has a niche portfolio with it,some of the niche drugs that Sun has which have high margin probabilities in the US markets. Again, the rate at which Sun is growing, at almost 20-30% of a CAGR basis is incremental EPS accretive for the stock. The US markets also will account for almost a 25% to 30% growth for Sun Pharma in the years ahead. So our own expectations are that the niche products that the company has in the US markets almost 142 ANDA filings, obviously also aid its support for the earnings going forward and its domestic portfolio as well. In ophthalmology and other segments also augur well for the stock. So yes detrimentally, the stock might correct today by 5-6% possibly but going forward if one has a sectional view, Sun has a strong franchise, its European subsidiary also should do well in the US market especially in the dermatology segment and the EBITDA margins should be able to be maintained at around 40-42-44%. So in my opinion if Sun declines, it becomes a good opportunity for investors to start accumulate that stock and keep a structural view. Sun will have decent cash flows going forward and it should be able to maintain onto its PE multiples in the years ahead.
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