Indian Pharmaceutical companies have been through a rough weather over the last 3 to 4 years. It was combination of more than 1 factor, which lead to almost all the Pharma companies to struggle for growth during this period. Before this period, most of the leading Pharma companies were consistently posting comfortable 2-digit growth Y-o-Y for many years, due to their increasing sales in US and other global markets, as well as increasing demand for medicines in India. During the last 3-4 years, all these companies faced substantial USFDA investigations, which was more of a step to protect their own corporations from increasing competitive pressures from companies based in India. Apart from that, the Indian Pharma companies also faced local government pressure to reduce prices of several high-in-demand medicines, which was aimed at benefiting the common public.
Most of the large sized Indian Pharma companies have bravely weathered through the storm created by the above 2 factors. India's largest Pharma company, i.e. Sun Pharmaceutical Industries Ltd, also had to face the same storm. In the year 2014, Sun Pharma acquired Ranbaxy Laboratories to create World's 5th largest Pharma company. During that year, Sun Pharma's
stock price nearly doubled in value as the deal was considered to be a big boost to the company's growth. But as soon as the above mentioned factors started affecting the business of all Pharma companies, including Sun Pharma, the company's stock price started correcting and has lost over 60% in value over the last 3 to 4 years.
(Click here to view Sun Pharma's Quarterly & T-T-M Numbers progress)
Now let's look at Sun Pharma's financial performance to see whether it deserved this kind of value erosion or not. I am using the Trailing-Twelve-Month numbers at the end of each quarter in my study. This helps in eliminating seasonal swings and also helps in building long term perspective. At the end of December'2015, when the Ranbaxy acquisition was fully complete, Sun Pharma's Total Income stood at about Rs.27,700
crores with a Net Profit of Rs.4000 crores and an EPS of Rs.16.70/-. By December'2016, the company's Total Income went on to increase to Rs.32,700 crores with a Net Profit of almost Rs.7900 crores and an EPS of Rs.32.90/-.
By December'17, Sun Pharma's Total Income had again dropped to Rs.27,400 crores with a Net Profit of just over Rs.2400 crores and an EPS of Rs.10/-. CY'2017 was amongst the most dismal years in the company's history. As we can see from the charts alongside, the numbers for Sun Pharma have started improving again over the last 3 to 4 quarters. At the end of December'2018, Sun Pharma's Total Income stands at just over Rs.29,900 crores with a Net Profit of over Rs.3900 crores and an EPS of Rs.16.4/-. This is decent amount of recovery and with all the factors affecting the company's business behind it, the recovery is expected to pick up pace going forward.
I am expecting Sun Pharma to post over 15% growth over the next 4 quarters and take it's Total Income to over Rs.35,000 crores and Net Profit is expected to grow almost 50% to reach somewhere about Rs.6000 crores with an EPS of Rs.25/-. The EBITDA progress chart alongside clearly suggests that the Profitability is improving with recovery in Total Income growth. (EBITDA is basically Profit before Interest, Depreciation, Tax, etc., in other terms EBITDA means Operating Profit) Hence I am expecting Net Profit to grow at almost 50% even with about 15 to 18% growth in Total Income.
Traditionally, Sun Pharma's stock has enjoyed a P/E Ratio of around 30. Even if we assume a P/E Ratio of 25, we could see Sun Pharma's stock to trade at well over Rs.600/- by December'19 or early 2020, if the company's quarterly numbers do perform as per my expectations. Sun Pharma did face a couple of issues on the Corporate Governance front, based on a Whistle Blower complaint. I don't count these issues to be significant and in any case the company has taken corrective actions. Hence after a few months, even the effect of these issues will be history and the stock will perform as per it's quarterly financial performance. It is difficult to predict exactly when & how the price of any stock will perform. But there are high chances that the stock price of Sun Pharma has already bottomed out and unlikely to go much lower than the current level of Rs.430/-. And there are high chances of the stock regaining it's glory, though in small doses, over the next 12 to 18 months. Investors with long term interest should certainly consider investing in Sun Pharma, not just for a 12 to 18 months view, but even longer as the company could progress as per it's historical track record and maintain a healthy growth in business for years to come.
Most of the large sized Indian Pharma companies have bravely weathered through the storm created by the above 2 factors. India's largest Pharma company, i.e. Sun Pharmaceutical Industries Ltd, also had to face the same storm. In the year 2014, Sun Pharma acquired Ranbaxy Laboratories to create World's 5th largest Pharma company. During that year, Sun Pharma's
(Click here to view Sun Pharma's Quarterly & T-T-M Numbers progress)
Now let's look at Sun Pharma's financial performance to see whether it deserved this kind of value erosion or not. I am using the Trailing-Twelve-Month numbers at the end of each quarter in my study. This helps in eliminating seasonal swings and also helps in building long term perspective. At the end of December'2015, when the Ranbaxy acquisition was fully complete, Sun Pharma's Total Income stood at about Rs.27,700
By December'17, Sun Pharma's Total Income had again dropped to Rs.27,400 crores with a Net Profit of just over Rs.2400 crores and an EPS of Rs.10/-. CY'2017 was amongst the most dismal years in the company's history. As we can see from the charts alongside, the numbers for Sun Pharma have started improving again over the last 3 to 4 quarters. At the end of December'2018, Sun Pharma's Total Income stands at just over Rs.29,900 crores with a Net Profit of over Rs.3900 crores and an EPS of Rs.16.4/-. This is decent amount of recovery and with all the factors affecting the company's business behind it, the recovery is expected to pick up pace going forward.
Traditionally, Sun Pharma's stock has enjoyed a P/E Ratio of around 30. Even if we assume a P/E Ratio of 25, we could see Sun Pharma's stock to trade at well over Rs.600/- by December'19 or early 2020, if the company's quarterly numbers do perform as per my expectations. Sun Pharma did face a couple of issues on the Corporate Governance front, based on a Whistle Blower complaint. I don't count these issues to be significant and in any case the company has taken corrective actions. Hence after a few months, even the effect of these issues will be history and the stock will perform as per it's quarterly financial performance. It is difficult to predict exactly when & how the price of any stock will perform. But there are high chances that the stock price of Sun Pharma has already bottomed out and unlikely to go much lower than the current level of Rs.430/-. And there are high chances of the stock regaining it's glory, though in small doses, over the next 12 to 18 months. Investors with long term interest should certainly consider investing in Sun Pharma, not just for a 12 to 18 months view, but even longer as the company could progress as per it's historical track record and maintain a healthy growth in business for years to come.
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