Despite the key US market continuing to be a major pain point, recovery in India business, improvement in Taro’s (US subsidiary) sales and traction in emerging market sales promise better times for Sun Pharma.

However, the stock of Sun Pharma fell 4 per cent on Wednesday tracking the fall in its second quarter earnings.

The company has reported a drop of around 59 per cent in consolidated net profit to ₹912 crore in the current Q2 against ₹2,235 crore in the same period last year. The sharp fall in net profit was the result of price erosion in the US business due to channel consolidation and increasing competition from higher ANDA approvals. Consolidated revenues during the second quarter came in at ₹6,590 crore, down 15 per cent year-on-year.

Lacklustre US show Revenue from the US formulations business, one of the key drivers for the company, was $309 million during the quarter, registering a fall of 44 per cent over the same period last year. The US business accounts for 30 per cent of the company’s total sales.

However, Sun Pharma’s US subsidiary, Taro Pharma, posted a 26 per cent fall in sales to $170 million during the second quarter, compared to the corresponding quarter in 2016, mainly due to the challenging pricing environment and increased competition. However, sequential sales at Taro grew 5 per cent after five consecutive quarters of decline.

Regulatory issues surrounding its Halol facility also dampened the US business. The facility has been under the scanner of USFDA for alleged violation of good manufacturing practices, which has affected the approval of drugs produced at this facility.

The company is awaiting re-inspection by the USFDA. Early clearance to the Halol unit is vital for the company’s future revenue.

The company’s focus on developing its specialty business will prop up its growth, going ahead. The key generic launches of Tildra, Seciera and Odomzo will provide a leg up to its US business in the next one to two years.

Recovery in domestic biz Domestic business for Sun Pharma that accounts for 34 per cent of total sales grew 11 per cent y-o-y to ₹2,221 crore due to recovery from the impact of GST implementation. Sun Pharma is the largest pharma company in India and holds approximately 8.5 per cent market share. With its presence in high-margin business, the company will continue to register double-digit growth going ahead.

Sales to emerging markets picked up to $196 million in the second quarter, up 16 per cent, partly driven by acquisition of Biosintez in Russia. Emerging markets accounted for 19 per cent of total sales.

Operating profit came in at ₹1,376 crore for the quarter. The operating margin narrowed down to 20.7 per cent during the quarter from 38.3 per cent seen in the same period last year due to higher sales from generic Imatinib exclusivity in the US last year.

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