Analysis of Financials of Sun Pharmaceuticals Industries Limited Introduction
Sun Pharmaceuticals Industries Limited (Sun) is a leading Indian global pharmaceutical company engaged in developing, manufacturing and marketing formulations and APIs. Its business is broadly categorized in four segments – India Branded Generics (41% of revenue), US Formulations (39%), International Generics (11%) and active pharmaceutical ingredients (APIs) (9%). The company offers formulations in various therapeutic areas, such as cardiology, psychiatry, neurology, gastroenterology and diabetology. It also provides APIs such as warfarin, carbamazepine, etodolac, and clorazepate, as well as anticancers, steroids, peptides, sex hormones, and controlled substances. Sun is the sixth largest branded generics player in India by prescription share. It is ranked first based on share of prescriptions in six classes of specialists, psychiatrists, neurologists, cardiologists, ophthalmologists, orthopaedics and gastroenterologists and is the market leader in chronic segments. In the International Generics segment, chronic therapy areas are expected to continue growing faster than the rest of the market. Sun has also initiated generic exports to select markets in Europe last year. Suns API business has presence in over 56 countries and the sales are primarily to large companies or innovator companies. They manufacture over 170 APIs and most of these complex APIs are used in the manufacture of specialty or chronic pharmaceuticals in-house.
Rising cost of R&D for new drugs, spiralling healthcare budgets and mounting governmental pressure to reduce drug prices are prompting companies to focus on the generic products business. It is expected that the share of generics in the global market will increase from 27% to 39% in 2015 whereas that of branded drugs will fall from 64% to 53%. In India by 2020 it is expected that 73 million new households would enter the middle and upper income bracket and nearly 650 million people would enjoy health insurance cover. The Indian Government is expected to increase its health spending to 1.5% of the GDP by 2020. It is expected that by 2015 the share of developed markets like US and EU in global medicine will fall (from 53% in 2010 to 44% in 2015) and share of pharmerging countries (China, India, Russia, Brazil etc.) will rise (from 18% to 28%). The latter will see growth driven by increased access through healthcare reforms and economic growth. Therefore the US generics market, Indian domestic market and other developing pharmerging countries represent potential areas of growth for Sun Pharma. Suns higher than industry average domestic growth, strong focus on fast-growing chronic therapeutic segments, its focused field force catering to specialist doctors and other initiatives such as in licensing of branded products are few of the advantages which will enable them to actively pursue growth opportunities in India. Sun has shown its commitment to strengthen its presence in the US Generics market by pursuing inorganic expansion opportunities such as the acquisition of Taro Pharmaceuticals, an Israeli based generic pharmaceutical company. Further focus on similar acquisitions will allow the company to diversify its presence across therapy areas and emerge as a powerful player in the U.S Market. Despite volatility in earnings, Sun maintains one of the strongest margins profile and robust balance sheet among Indian peers. With sizeable cash reserves, company is well positioned to pursue in-organic investments and support its R&D pipeline to target the emerging complex generics opportunities in developed markets.
The following factors will drive growth in the domestic pharmaceutical industry – a) rising household income levels, b) increasing prevalence of lifestyle related diseases, c) improving healthcare infrastructure/delivery systems and 4) rising...