Sun Pharma retains its leadership in the industry in Q4FY22

Sun Pharma is currently India’s largest pharmaceutical firm and the world’s fourth largest specialty generic company. It operates 43 manufacturing facilities across the world and has a strong presence in more than 100 countries across the branded and generic segments. Specialty products, branded generics, complicated generics, pure generics, and APIs, make up the company’s product range. Sun Pharma announced its results for Q4FY22 where it recorded a fall of 362.1% in YoY quarterly profits due to one-time exceptional item.

Profits fall 362.1% YoY due to some one-time exceptional item

For Q4FY22, the company reported a consolidated net loss of Rs 2277.25 crore compared to a profit of 894.15 crore in the same quarter last year. Several analysts had projected a net profit of 1738 crore, but Sun Pharma failed to meet the expectations due to the presence of some exceptional items in the Q4 financials.

The company incurred a one-time cost of Rs 56.35 crore in relation to restructuring of operations in certain countries whereas the company has also provided Rs 156.25 crore for a settlement of lawsuit. Apart from that, the company also incurred a loss of Rs 3,723.15 crore as part of settlement of some class action lawsuit in the US, thereby making the total exceptional loss for the quarter at Rs 3,935.75 crore.

The adjusted net profit for the quarter was at Rs 1,582.1 crore, up by 18 per cent YoY, after excluding the exceptional items of Rs 3,935.7 crore and exceptional tax gain of Rs 76.4 crore, which indicates that the company has performed well if exceptional losses which are one-time items are not considered.

Profits fall 362.1% YoY due to some one-time exceptional item in Q4FY22

The total revenue increased by 10.83% YoY from Rs 8522.98 crore in Q4FY21 to 9446.76 crore in Q4FY22. Which can be further classified as India formulation sales at Rs 3095.6 crore, up 16% YoY. US formulation sales were at $389 million, up 5% YoY. Emerging Markets formulation sales were at $206 million, up by 7% YoY, while Rest of World formulation sales were at $178 million, up by 7% YoY.

Break up of revenue from different geographies in FY22

All geographies recorded double digit growth and profitability improved despite rising costs. The specialty business continues to ramp up strongly with global Ilumya sales recording 81% growth to reach $315 million in FY22. Even the India business continues to grow faster than market, leading to increase in market share. Moreover, the company also paid a debt of $355 million in FY22 as result of which debt-equity ratio of the company is down to 0.02.

Debt Equity ratio falls to 0.02 after repayment of debt of $355 million

The company has also recorded a sturdy growth in EBITDA margins as they have been rising continuously from FY18 till FY20, followed by a fall in FY21 which was due to the pandemic. In FY22, the company ended with EBITDA margins of 17.06%, which was lower than pre Covid levels.

Growth driven Plans for FY23

“Sun Pharma is expecting a high single digit or low double-digit growth in top line in FY23” according to the management in an analyst conference call. They further stated that, “R&D expenses are expected to be 7-8% of sales figures in FY23 and will be supported by strong cash flow”. Let us have a look at free cash flows of Sun Pharma from FY17 to FY 21.

The company is looking forward to increasing their product portfolio through robust investment in research which will also enable them to further expand their market share. The current market share of Sun Pharma stands at 8.4%. The company has made a few acquisitions in FY22 along with 11 new product launches and is planning to carry forward this momentum in FY23 as well.

Finally, the company is also looking for a further expansion of 10% in their field force which will be driven by the twin objectives of brand focus & geographical expansion.

Technical Analysis: Stock is in an uptrend for the last one year

On the charts, Sun Pharma is in uptrend for more than a year now with 50 DMA well above 100 and 200 DMA

On the charts, stock is in an uptrend with all short-, medium-, and long-term averages showing bullishness. After the announcement of results, the stock has is in a consolidation mode and currently trading near the support zone of 840.

Our View:

The company has been performing well in recent years despite operations being affected by the second wave of Covid-19. In the face of rising raw material costs, the company was able to succeed in managing their margins with the help of new product launches and better supply chain management.

Even on the international front the company is experiencing robust growth in sales as well as profits and is expected to continue the same in the next quarter also. Investors can keep a positive view of this pharmaceutical leader, which is striving hard to maintain its leadership position.