Analysts raise Sun Pharma FY14 estimates post Q1 results

Sun Pharma wrote-off Rs 2,517 crore to settle a patent litigation with Pfizer, which resulted in a consolidated Q1 net loss of Rs 1,276 crore. However, adjusted profit jumped 56 percent and revenue was up 32 percent, sending the stock up over 8 percent.

Sun Pharmaceuticals Industries  shares surged over 8 percent on Monday after the street gave a big thumbs up to its first quarter earnings. Fortune Equity Brokers and Avendus Securities upgraded their rating and several other brokerages also raised their earnings estimates and target price on the generic drugs maker citing "strong" first quarter results.

Sun Pharma reported a consolidated net loss of Rs 1,276 crore in the April-June quarter, as it wrote-off Rs 2,517 crore to settle a patent litigation with US-based Pfizer. its adjusted net profit soared 56 percent year-on-year and consolidated revenue was up 32 percent in the first quarter.

Fortune Equity raised the stock to "buy" from "hold" and Avendus upgraded its rating on Sun Pharma to "add."

"Sun Pharma delivered another strong quarter, led by the US generic business. Notwithstanding a marginal weakness in Taro , US sales at USD 363 million were ahead of estimates, driven by a combination of a stronger momentum in the legacy business and larger impact from the two recent acquisitions (URL, Dusa Pharma)," said Monica Joshi of Avendus, raising revenue and profit estimates for FY14 by 9 percent and 15 percent.

Similarly, Hitesh Mahida of Fortune is bullish on the stock because US formulations business is clocking high growth on high base and has raised earnings estimates by 7 percent.

"The US business, excluding Taro, posted a staggering growth of 64 percent year-on-year. We believe the outperformance would have come from rising sales of Doxycycline Hyclate and Lipodox. URL's sales in FY14 should be USD 248 million (USD 120 million in FY13) as they have raised price of Doxycycline Hyclate by 15 times. Moreover, we expect them to gain share in older products during the course of the year," Mahida said.

ICICI Direct.com maintained its "hold" rating on Sun Pharma, but raised its target price to Rs 533 from Rs 488 and also upped its FY14 EPS (earnings per share) estimates to Rs 9.6 from Rs 6.5.

"Sun Pharma has time and again demonstrated an uncanny knack of beating the estimates comprehensively with rounded growth and over 80% gross profit margins. The settlement may have capped its ambitions for more acquisitions but it is still left with USD 750 million of cash. Add to this the huge global product pipeline, which provides highest level of visibility," ICICI Direct analysts Siddhant Khandekar and Krishna Konduri said in their report.

However, Khandekar and Konduri feel there has hardly been any correction in the stock price to facilitate an entry point.

Vivek Kumar of SBI Caps Securities also raised Sun Pharma's EPS estimates for the current financial year by 9 percent. However, rating remains "hold" due to expensive valuations.

"We remain optimistic on strengthening US portfolio. We highlight any big sized US acquisition will strategically demonstrate growth drivers beyond FY15 and will be an upside risk to our price target," Kumar said.

Macquarie also raised the target price to Rs 675 from Rs 625 with an "outperform" rating and CLSA also advises investors "buy" Sun Pharma with a target of Rs 630.

At 11:00hrs, Sun Pharma was up 7.6 percent to Rs 544.35 on NSE.