Sun Pharma’s 4QFY08 performance was above estimates

Sun Pharma’s 4QFY08 performance was above estimates. Key highlights:

· Net sales grew by 133% to Rs12.39b while PAT grew 241% to Rs7.22b. Revenues & PAT were boosted by exclusivity-based supplies of Pantoprazole & Oxcarbazepine (we estimate sales at Rs5.6b with PAT contribution of Rs3.4b). Adjusted for these one-offs, net sales grew by 27% to Rs6.75b while PAT grew by 59% to Rs3.3b.

· Guidance: Management has guided for 18-20% top-line growth for FY09E excluding US sales, while Caraco has guided for 25% top-line growth in the US including Para-IV upsides.

· Update on Taro acquisition: Taro’s directors have rejected SPIL’s merger offer citing reasons of undervaluation. SPIL is currently exploring various options to pursue the merger.



We have upgraded our core EPS estimates by 13-15% each for FY09E and FY10E. An expanding generic portfolio coupled with change in product mix in favor of high-margin exports is likely to bring in long-term benefits for SPIL. Its ability to sustain high growth rates at superior margins even on a high base is a clear positive. With the domestic business progressing well and increasing traction on the US front (both in Caraco and from India), the possibility of a rapid scale-up over the next couple of years is high. Key drivers for future include ramp-up in US, the expected value unlocking by leveraging acquired companies (Able Labs & Valeant) and monetization of the Para-IV pipeline. Based on our revised estimates, SPIL is valued at 25.5x FY09E and 21.3x FY10E earnings (excl Para-IV upsides which have a DCF value of Rs25/share). We maintain Buy.