Sun Pharma has delivered a modest 12 per cent revenue growth in the June quarter, down from 31 per cent in the March quarter. This was on account of two events.

First, Taro Pharma, which accounts for about 30 per cent of Sun’s revenue, reported a 15 per cent decline in sales for the quarter. Taro participates in the US Government’s healthcare programmes such as medicare and medicaid. During the quarter, Taro took price increases in select drug brands. However, given that the supplies to Governmental programmes are made at prices contracted upon, the company cannot pass on the price increases on supplies to the Government.

Thus, Taro wrote off charges (difference between the inventory and the contracted price) to the tune of $79 million (₹482 crore). This led to a $27 million (₹165 crore) reduction in Taro's gross profit for the June quarter.

Adjusting for this, Taro’s revenue and gross profit grew 18 per cent and 25 per cent, respectively, compared with the same period last year. Despite the adverse impact on Taro’s revenue and profit for the June quarter, the benefit from price increases on the non-contracted portion will reflect in the current quarter. This should provide a leg-up to Sun’s performance in the September quarter.

Second, Sun’s performance in the emerging markets was impacted due to raw material supply issues. This being a temporary issue, the company's sales in these markets may improve in the forthcoming quarters.

Despite the slow sales growth, Sun managed to maintain its operating margin at 44 per cent (44.3 per cent in the June 2013 quarter).

Over the last few quarters, pharma companies with significant presence in the US such as Sun Pharma, Dr Reddy’s and Lupin benefited from the rupee weakness (against the US dollar).

Should the rupee remain steady at the current 61 levels, the currency-led improvement in realisation may not repeat in the current fiscal.

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