Sun Pharma Q1 profit may be weighed by weak US generic sales and Taro nos
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Drugmaker Sun Pharmaceutical Industries (Sun Pharma) is expected to report a muted net profit for the June quarter (Q1FY24) when it announces its earnings on Thursday, August 3.
The pressure on earnings is likely due to flat growth for the arm of Taro Pharma, weak US generic sales as a result of product restrictions at its Halol and Mohali facilities, and higher R&D spending and remediation charges.
The company’s Q1 net profit could dip fractionally by 0.15 percent to Rs 2,058 crore against Rs 2,061 crore reported a year ago. Sequentially, this may be around 4 percent higher, as per an average of seven brokerage estimates.
Revenue is estimated to rise 7.5 percent year-on-year (YoY) to Rs 11,573 crore. On a QoQ basis, this could be 6 percent higher.
Taro Pharma last week reported a 1.4 percent revenue growth to $159 million for the June quarter, while its net profit dropped 29 percent to $10 million.
Sun Pharma’s India sales are seen growing firmly at 7-10 percent YoY. This, coupled with the strong US specialty growth, will offset the weakness in the generic segment, analysts said.
Nirmal Bang and PhllipCapital expect the US specialty business to grow 31.6 percent and 25 percent YoY, respectively, driven by continuous scale-up in sales of Winlevi, Ilumya, and Cequa.
While for the generic segment, the company faced severe volume and market share erosion in gDoxil and gAmbisome, as per Systematix. “Further, the import alert at its Halol facility and non-compliance letter at the Mohali facility will likely continue to be a drag on the US generics business in Q1,” it said.
Thus, sequentially, US sales could decline by as much as 4 percent to $412 million, as per Kotak Institutional Equities. While PhliipCapital pegs this at $441 million. In Q1FY23, the US sales of the company were worth $420 million.
KIE also bakes in a 140 bps QoQ decline in the Ebitda margin for Sun Pharma (YoY decline of 100 bps) driven by higher R&D expenses (seen at 6.9 percent of sales).
“Gross margin was abnormally high in 4QFY23 and should normalize to 76 percent (fall of 340 bps QoQ). The firm has given guidance of higher R&D expenses for FY24, though we expect a ramp-up only in the coming quarters. We expect the margins to decline by 70 bps sequentially in Q1”, said analysts at InCred Equities.
Sequentially, the profit will also normalize sharply given the exceptional gains in the March quarter.
“In 4QFY23, the company had reported exceptional items worth Rs 170 crore, due to impairment charges, settlement claims, and acquisition-related expenses for Concert Pharma. Adjusted for these, net profit is seen falling 15 percent QoQ in 1QFY24,” said KIE.
Sun Pharma’s Ebitda (earnings before interest, tax, depreciation, and amortization) is estimated at Rs 3,111 crore by Nirmal Bang, while this is seen at Rs 2694 crore by analysts at Systematix. In the year-ago period, Sun Pharma had reported an Ebitda of Rs 2,884 crore.
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