7 April 2014
Update | Sector: Healthcare
Sun Pharma
BSE Sensex
22,343
S&P CNX
6,695
CMP: INR587
TP: INR750
Buy
Acquires Ranbaxy: yet another steal for Sun
Synergies could realize over two to three years
Stock Info
Bloomberg
Equity Shares (m)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
M.Cap. (INR b)
M.Cap. (USD b)
SUNP IN
2,071.1
653/423
-6/-16/16
1,184.5
19.7
SUNP acquires RBXY for USD4b, diversifies India business, strengthens position in
emerging markets, deal valued at 2.2x sales.
SUNP expects the acquisition to be cash EPS accretive in the first year and realize
USD250m of operating synergies by third year post close.
We believe SUNP can manage RBXY’s assets better; however, synergies could
take two to three years to realize. Cultural integration, the biggest challenge for
SUNP.
Financial Snapshot (INR b)
Y/E Mar
2014E 2015E 2016E
163.6 187.1 230.9
Sales
72.3 80.6 100.0
EBITDA
30.3 60.8
79.5
Rep. PAT
14.6 29.3
38.4
Rep.EPS (INR)
46.8 54.4
61.6
Core PAT
29.8
22.6 26.2
Core EPS (INR)
53.1 16.2
13.4
EPS Gr. (%)
84.0 109.2 142.9
BV/Sh. (INR)
28.9 27.2
23.6
RoE (%)
29.4 41.3
40.5
RoCE (%)
19.4 12.5
11.2
Payout (%)
Valuations
26.0 22.4
19.7
P/E (x)
7.0
5.4
4.1
P/BV (x)
15.3 15.3
15.3
EV/EBITDA (x)
Shareholding pattern (% )
As on
Dec-13 Sep-13 Dec-12
Promoter
Dom. Inst
Foreign
Others
63.7
5.7
22.6
8.0
63.7
3.2
22.9
10.3
63.7
4.4
21.6
10.3
SUNP acquires RBXY for USD4b, diversifies India business, strengthens
position in emerging markets:
Post the acquisition, SUNP will be a leading
player in 13 therapies in India, gain entry into the fast growing OTC space in
India, establish a footprint across 55 emerging markets and will create a strong
pipeline of 184 ANDAs, including FTFs in the US. SUNP becomes the fifth largest
global specialty company, No. 1 pharma company in India, No. 1 generic
company in the generic derma space in the US.
SUNP expects acquisition to be cash EPS accretive in the first year and realize
USD250m of operating synergies by third year post close:
SUNP expects to
realize synergies through stronger sales growth, efficient procurement and
supply chain efficiencies. It also intends to leverage the human resources of
both companies. SUNP believes it can realize USD250m of operating synergies
by the third year post close. The synergy benefits do not consider any gains
from resolution of US FDA issues at RBXY.
Stock Performance (1-year)
Expect SUNP to manage RBXY assets better; however, synergies could
take two to three years to realize. Cultural integration, the biggest
challenge for SUNP:
Keeping the strong acquisition track record in mind,
we expect RBXY’s assets to show a better performance under SUNP.
However, synergy benefits will take time to materialize and will only
happen over a period of 24-30 months. Hence, we believe RBXY’s FY16
numbers could have an upside potential. Among the three challenges
seen (US FDA compliance, company profitability and integration of
RBXY), we believe the cultural integration could be the most important
challenge for SUNP. Overall, we remain positive on the deal. We do not
change our financial estimates and retain our rating and target price of
INR750 as the deal closure is expected at the end of CY14. However, we
present a performa of the merged entity in the following pages, based on
which we believe the combined entity has a fair value of INR770/share.
Alok Dalal
(Alok.Dalal@MotilalOswal.com); +91 22 3982 5584
Hardick Bora
(Hardick.Bora@MotilalOswal.com); +91 22 3982 5423
Investors are advised to refer through disclosures made at the end of the Research Report.