News Analysis

Sun Pharma: possible earnings recovery lends a shine

Dhuraivel Gunasekaran | Updated on May 28, 2018 Published on May 28, 2018

The stock of Sun Pharma surged as much as 8 per cent on Monday, tracking the positive earnings guidance by the company post-announcement of its fourth quarter results for 2017-18. The company has reported a positive earnings growth in the fourth quarter of 2017-18, the first time in the last six quarters.

Its consolidated net profit rose by 7 per cent to Rs 1,309 crore in the March quarter as against Rs 1,224 crore seen in the same period last year. The bottom line was aided by a one-time tax write-back of Rs 259 crore during the quarter. Around 39 per cent reduction in raw material costs also boosted net profit in the quarter. Its consolidated total revenue during the quarter at Rs 6,977 crore, fell by 2 per cent year-on-year.

Despite the key US market remaining a major pain point, sequential improvement in Taro’s (US subsidiary) sales, the hope of regulatory clearance for its Halol plant by the second quarter of FY19, and the likely big ticket launch of three speciality products in the US market in FY19 have bolstered investors’ confidence in the stock. The company has guided for low double-digit growth in its overall business in FY19.

Sun Pharma’s US business declined 7 per cent Y-o-Y, while growing 11 per cent sequentially to Rs 2,376 crore, supported by a better performance by Taro – its US subsidiary. Taro reported March quarter revenue at $175 million, registering a sequential growth of 13 per cent.

The company has guided for positive growth in its US business in FY 19, driven by key speciality product launches and clearance for the Halol plant. The expected launch of speciality products - Illumya, Seciera, Yonsa - is likely to boost its US revenue in the next one-two years. However, there seems to be pressure on its operating margin in the near term due to base business pressure and higher other expenses, including R&D due to elevated speciality spends.

The company’s India business grew by 2 per cent Y-o-Y to Rs 1,963 crore in the fourth quarter due to growth challenges in its consumer healthcare division. The company’s consolidated R&D investments for the fourth quarter was Rs 743 crore, or 11 per cent of sales, compared to Rs 600 crore or 9 per cent of sales for the same period last year.

For the full year, R&D expenses were at Rs 2,249 crore, or 8.6 per cent of sales. The company’s operating margin for the fourth quarter stood at 24.1 per cent, which improved by 245 bps due to higher other operating income.

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