Business profile

The Indian formulations market is the key to Sun's fortunes. The company derives 62 per cent of its revenues from this segment. By focussing on therapeutic areas such as psychiatry, neurology, cardiology, diabetology and gastroenterology, Sun addresses a market that is growing at a rate that is much higher compared to the overall industry growth rate.

Targeting these segments also means that a company can market products that fall outside of the ambit of price control, which is crucial to better margins.

The importance of Sun's marketing efforts cannot be overlooked, as the company set about building up its franchise in the domestic market.

By beefing up its field and through marketing efforts aimed at specific therapeutic areas, Sun has attained leadership status in areas such as neurology and psychiatry.

Performance analysis

Sun consistently managed to grow at twice the rate of the overall industry.

The fall in the domestic formulations growth rate over the first half of this financial year are two-fold: The supply overhang created by Sun booking excess sales of Rs 35 crore in the January-March 2003 quarter to avail of tax benefits, and the discontinuation of marketing an analgesic that had contributed Rs 15 crore in sales in the corresponding previous quarter.

Importantly, growth rates of 20 per cent and above achieved by Sun in the domestic formulations business is expected to cool off a bit and settle at 15 per cent.

This only vindicates that even the supposedly price-inelastic lifestyle segment is not entirely impervious to price competition.

Increasingly, Sun's prospects will be viewed through the prism of Caraco, its 49 per cent subsidiary, that acts as a vehicle for the former's entry into the lucrative US market.

For the nine-months ending September 2003, Caraco posted sales of $33 million and a PAT of $11 million (compared to a loss of $ 1.7 million the previous year).

Caraco might get approval for a couple of abbreviated new drug applications (ANDA) in the calendar year, which might boost sales further.

It appears that a strong performance from Caraco has already been factored in by the markets in the course of the sharp run up in Sun's stock price.

Further action on ANDA filings might happen only in the fourth quarter of this fiscal. Any positive development on that front could act as a kicker to earnings.

Stock outlook

Sun's strength in the domestic market should be a source of comfort for investors. Its earnings growth is likely to be steady, though not spectacular.

And in a rather unpredictable market environment, such stability is what investors would be comfortable with. Remain invested.

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