Stock To Buy: Sales Up Rs 93.9b in 4QFY22, Buy For Over 20% Potential Gains, Suggest Motilal Oswal

The reputed brokerage firm, Motilal Oswal Financial Services has suggested investors buy Sun Pharmaceutical Industries Ltd. (Sun Pharma) for a target price of Rs 1,040. The management has guided at high single- to low double-digit YoY revenue growth in FY23.

Stock Overview - Target Price, Returns, CMP, 52 Week Low & High

According to the NSE website, Tuesday, 31 May 2022, Sun Pharma was opened at Rs 867.25, after falling 2.61%, closed at the Current Market Price (CMP) of Rs 867.15. The given target price and the CMP, the stock has potential to gain 20.21%. In the last 1 year, the stock has gained about 28%. It has touched the 52-week low level at Rs 652.70 on 18th June 2021, while the 52 weeks high at Rs 967.05 on 29 April 2022.

Sun Pharma delivered a lower-than-expected 4QFY22 due to moderation in the RoW/EMs/API segment and higher OPEX. The Specialty portfolio continues to progress well, with its contribution to sales rising to 13% in FY22 from 7% in FY18.

Sales rose 11% YoY, Gross margin fell

Sales rose 11% YoY to Rs 93.9b in 4QFY22 (est. Rs 93.7b). DF sales grew 16% YoY to Rs 31b (33% of sales). RoW sales rose 7% YoY to USD178m (14% of sales). EM sales increased by 7% YoY to USD206m (16% of sales). US sales grew 5% YoY to USD389m (31% of sales). Gross margin fell 50bp YoY to 72.9% in 4QFY22. EBITDA margin contracted by 70bp YoY to 22.6% (est. 25.7%), driven largely by product mix and higher other expenses (+70bp), but was partially offset by lower R&D spend (down 80bp as a percentage of sales). EBITDA rose 8% YoY to Rs 21.2b (est. Rs 24b). Sun Pharma incurred an exceptional cost for: a) litigation settlement related to Valgancyclovir/Valsartan (USD485m), b) restructuring of operations (Rs 563m), and c) payment for settlement with Direct Purchaser Plaintiff (DPPs; USD15m) and legal charges (USD5.5m). Adjusted PAT grew 8.6% YoY to Rs 15.8b (est. Rs 17.7b). Revenue/EBITDA/PAT grew 16%/23%/27% to Rs 384b/ Rs 99b/Rs 77b in FY22.

Buy for a target price of Rs 1,040/share

Motilal Oswal in the report has said, "We tweak our FY23/FY24 EPS estimate by -4%/-3%, factoring in: a) higher R&D spend on clinical trials, b) high OPEX-related to promotional activities and supply chain management, and c) weakness in API offtake to some extent. We value Sun Pharma at 25x 12-month forward earnings to arrive at our Target Price of Rs 1,040."

The brokerage added, "We remain positive on Sun Pharma on the back of: a) a strong outperformance in the branded Generics segments of DF/RoW/EMs, b) scale-up of the Specialty portfolio, and c) niche launches in the US generics segment."

About The Company - Sun Pharmaceutical Industries Ltd.

Sun Pharmaceutical Industries Ltd., founded in 1983, is the fourth largest speciality generic pharmaceutical company in the world with global revenues of over US$ 4.5 billion. Supported by more than 40 manufacturing facilities and 36,000 plus employees across the globe, the company provide high-quality, affordable medicines, trusted by healthcare professionals and patients, to more than 100 countries across the globe. Sun Pharma is engaged in the business of manufacturing, developing and marketing a wide range of branded and generic formulations and Active Pharma Ingredients (APIs). The company and its subsidiaries have various manufacturing facilities spread across the world with trading and other incidental and related activities extending to the global market.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal Financial Services. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.