Revenues driven by India/ROW: SUNP's sales increased 16% YoY to Rs 79.5b (in-line) in 2QFY20, mainly driven by strong growth in India and RoW sales. India sales were up 35% YoY to Rs 25b (32% of sales), led by the robust outperformance to industry and partially led by a low base. RoW sales were up 49% YoY to $161m (16% of sales), led by organic growth and the integration of Pola Pharma Japan. However, the business was dragged to some extent by flat YoY US sales (30% of sales) at $339m, with Taro posting sales of $161m (+1% YoY). Emerging Markets (EM) sales were up 3% YoY at $201m (18% of sales).
Inferior product mix offset by controlled cost: Gross margin contracted 280bp YoY (+130bp QoQ) to 71.5%, mainly due to the change in the product mix and the distribution transition in India. EBITDA margin shrank at a lower rate of 80bp YoY to 20% (our estimate: 21%) due to controlled opex with lower employee/R&D cost (-110bp /100bp YoY). EBITDA was up 11% YoY at Rs 16.1b (in-line). Adj. PAT increased marginally by 3% YoY to Rs 10.6b (in-line) due to a higher tax rate.
Concall highlights: Global specialty sales were flat QoQ at USD91m. Higher Ilumya sales were offset by seasonality in Absorica and Levulan on a sequential basis. With respect to Absorica, SUNP intends to launch a lifecycle extension product in 4QFY20. gLialda would be launched in the near term in the US market. Specialty R&D formed 24% of total R&D spend for the quarter.
Valuation view: We raise our FY20/21 EPS estimate by3%/2% to Rs 18/Rs 22 to factor in robust growth in domestic formulation, increasing traction in the specialty portfolio and the reduced interest outgo. We continue valuing SUNP at 22x 12M forward earnings to arrive at a TP of Rs 515 (prior: Rs 490). Maintain ‘buy’.