The Hindu Business Line : Sun Pharma: Buy

FRESH exposures can be considered in the stock of Sun Pharma, which trades at about Rs 650. Any weakness in the stock, linked to broad market trends, would also serve as a good entry point.

Our call is a continuation of the bullish stance we have maintained on the stock; we are sanguine about Sun's prospects and are of the view that it represents that best play among the large-cap domestic pharma companies.

However, we believe that it would be appropriate for investors to buy into the stock with modest, as opposed to ambitious, expectations of returns, considering the gains the stock has logged in the recent past.

Sun continues to post impressive growth rates, as was manifest in both the domestic and the exports business in the recently-ended quarter.

A leading presence in therapy areas such as psychiatry, neurology and cardiology, to name a few, which are all chronic in nature, is the key driver of Sun's business model. As a result, Sun has consistently managed to post growth rates well above that of the market.

Growth on the exports front also was robust, especially on the bulk front, as the impact of Sun's acquisition of facilities in Hungary and the US kicked in.

Operating margins may have dipped on a year-on-year basis, but that can be largely explained by the integration of MJ Pharma and Phlox, apart from that of the facilities abroad, whose contribution to sales was not commensurately matched at the bottom line level. In spite of the dip, margins well in excess of 30 per cent continue to be among the best in the industry.

In the regulated US market, Sun and its subsidiary Caraco continue to make rapid strides. As of end September, Sun and Caraco had a total of 37 abbreviated new drug applications (ANDA) pending approval with the US Food and Drug Administration (FDA). Approvals and launches should take place over the next two-three years, providing good visibility US operations.

We also note that Caraco has received a judgment in its favour for the launch of generic Ultracet. Caraco is now awaiting US FDA approval for launching the product. Though the launch timeline is unknown, as and when it does happen, we view it as an interesting opportunity for Sun.

On the drug discovery front, Sun expects to file an investigational new drug (IND) application for its new chemical entity (NCE) with the US FDA for it in a short while. The management has stated that more details about the molecule will be available after completion of Phase II trials.

Sun is also on track to file INDs for its two novel drug delivery system (NDDS) products over the next few months. While Sun's inherent strengths in its base business should support the stock, news flow on its NCE/NDDS business could provide further impetus. Reiterate buy.

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