Sun Pharma: Buy. Sun Pharma: long-term portfolio therapy

Sun Pharma’s stock lost about 9 per cent of its value the past week after Japanese drug-maker Daiichi Sankyo sold its 9 per cent stake in the company. Given the robust long-term prospects of Sun Pharma, investors with a three/five-year investment horizon can use the recent fall as a good buying opportunity.

The stock currently trades at an attractive 23 times its 2015-16 earnings, implying an almost 20 per cent discount to peers Lupin and Cipla.

Sun Pharma, which made public its decision to acquire drug major Ranbaxy last April, merged the latter with itself early this month.

Sun is now the largest drug-maker in the country with a 9 per cent share of the market.

For Sun, which is the leader in chronic therapies such as neuropsychiatry and cardiology, the acquisition of Ranbaxy opens up opportunities in the acute therapy segment including anti-infectives, dermatology and urology.

The integration of Ranbaxy should help Sun sustain double-digit growth over the next two-three years in the domestic market. The product and distribution synergies in the US market should help Sun sustain healthy growth there. The company derives two-thirds of its revenue from the US.

Sun’s superior marketing and distribution franchise in the US should help it scale up revenues from Ranbaxy’s generic product basket.

Likewise, Sun can leverage its expertise in the derma market (through its subsidiary Taro Pharma) to boost revenues from Ranbaxy’s acne drug Absorica.

The acne drug commands about 19 per cent share of the market. Besides aiding growth in regulated markets, the Ranbaxy merger will strengthen Sun’s position in emerging markets in the Asia-Pacific, Latin America, Africa and West Asia.

Sun’s management expects the Ranbaxy merger to add $250 million to its operating profit over one-two years.

Besides, Sun’s acquisition of companies in niche areas, such as the recent buyout of GSK’s opiates business in Australia, should help.

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