Sun Pharmaceutical Industries

Cluster: Ugly Duckling

Recommendation: Hold

Price target: Rs1,491

Current market price: Rs1,415

Price target revised to Rs1,491

Sun Pharmaceutical Industries (Sun) has announced three abbreviated new drug application (ANDA) approvals (two final and one tentative) in the past one week, citing a relief on the core business front. The therapeutic approvals received for the US market range from products with a market size of $40 million to $950 million, reflecting Sun?s presence and deep penetration in the regulated markets.
Although the two final approvals may attract generic competition, the catch here is that generic companies have started receiving ANDA approvals at a quicker pace for the past couple of quarters. We expect Sun (ex-Caraco Pharmaceuticals [Caraco]) to post a healthy growth of ~25% in the export market during FY2010 on the back of steady approvals.
At the current market price of Rs1,415, Sun is valued at 21.3x FY2010E and 20.4x its FY2011E fully diluted earnings. With 108 ANDAs pending approval, we expect Sun to report a growth in its base business on the back of niche generics (such as controlled substance) and key first-to-files (FTFs; such as generic Effexor XR). However, given the near-term challenges, we maintain our Hold recommendation on the stock with a revised price target of Rs1,491 (20x its FY2011 earnings).