Sun Pharmaceutical IndustriesLtd – Reaching People, Touching lives

Date Published: February 16, 2021

Company Overview:

Sun Pharmaceutical Industries Ltd. is the fifth largest specialty generic pharmaceutical company in the world. The company manufactures and markets a large basket of pharmaceutical formulations covering a broad spectrum of chronic and acute therapies. It includes generics branded generics complex or difficult to make technology intensive products over-the-counter (OTC) products anti-retroviral (ARVs) Active Pharmaceutical Ingredients (APIs) and intermediates. The product portfolio of over 2000 high quality molecules covers multiple dosage forms including tablets capsules injectable inhalers ointments creams and liquids. The products cater to a vast range of therapeutic segments covering psychiatry anti-infective neurology cardiology orthopedic diabetology gastroenterology ophthalmology nephrology urology dermatology gynecology respiratory oncology dental and nutritionals.The company has global presence with 41 manufacturing facilities across the world. India and the US are two predominant markets accounting for nearly 70% of the company’s revenue. The company has a robust product pipeline and established presence in Europe and high-growth emerging markets like Russia Romania South Africa Brazil and Mexico. The company has entered into a joint-venture agreement with MSD (Merck) to develop and bring differentiated branded generics to emerging markets.

Industry Overview:

India is the largest provider of generic drugs globally. Indian pharmaceutical sector supplies over 50% of global demand for various vaccines, 40% of generic demand in the US and 25% of all medicine in the UK.India enjoys an important position in the global pharmaceuticals sector. The country also has a large pool of scientists and engineers with a potential to steer the industry ahead to greater heights. Presently, over 80% of the antiretroviral drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome) are supplied by Indian pharmaceutical firms.Indian pharmaceutical sector is expected to grow to US$ 100 billion, while medical device market is expected to grow US$ 25 billion by 2025. Pharmaceuticals export from India stood at US$ 20.70 billion in FY20. Pharmaceutical export includes bulk drugs, intermediates, drug formulations, biologicals, Ayush and herbal products and surgical.India’s biotechnology industry comprising biopharmaceuticals, bio-services, bio-agriculture, bio-industry, and bioinformatics is expected grow at an average growth rate of around 30% a y-o-y to reach US$ 100 billion by 2025.

Company Operations:

Sun Pharmaceutical Industries Ltd is an international specialty pharma company. The Company manufactures and markets pharmaceuticals formulations as branded generics, as well as generics in India, the United States (US) and several other markets across the world.The Company’s business is divided into four segments: Indian Branded Generics, US Generics, International Branded Generics (ROW) and Active Pharmaceutical Ingredients (API).Its brands are prescribed in chronic therapy areas like cardiology, psychiatry, neurology, gastroenterology, diabetology and respiratory. It makes specialty APIs, including peptides, steroids, hormones and anticancer. APIs and Dosage forms are made at 20 plants across India, Israel, the US, Canada, Hungary, Brazil, Mexico and Bangladesh. Its API products include Acamprosate Calcium, Alendronate Sodium, Amifostinerehydrates, Budensonide and Carvedilol.Sun pharma has ensured world-class quality in design, equipment and operations in all manufacturing facilities across the world. Also have over 40 (API & finished dose) state-of-the-art manufacturing sites spanning 6 continents. These manufacturing units are located in India, the US, Brazil, Canada, Egypt, Hungary, Israel, Bangladesh, Mexico, Romania, Ireland, Morocco, Nigeria, South Africa and Malaysia. Our units ensure that we are able to provide best-in-class products to patients across 150 countries worldwide. Company’s manufacturing operations are focused on producing generics, branded generics, speciality, over-the-counter (OTC) products, anti-retrovirals (ARVs), Active Pharmaceutical Ingredients (APIs) and intermediates in the full range of dosage forms, including tablets, capsules, injectables, ointments, creams and liquids. And also manufacture speciality APIs, including controlled substances, steroids, peptides and anti-cancers. Company has a highly skilled team of regulatory affairs specialists who are well versed with regulatory policies and procedures around the world. They have a wealth of experience in the timely filing of dossiers as well as handling regulatory queries from both authorities and customers.A wide range of regulatory agencies routinely conduct stringent audits of our manufacturing facilities for compliance with Current Good Manufacturing Practices (cGMP). Several regulatory agencies, including FDA-USA, EMA-Europe, MHRA-UK, MCC-South Africa, TGA-Australia, ANVISA-Brazil, WHO-Geneva, BfArM-Germany, KFDA-Korea and PMDA-Japan, have inspected our facilities.

Key focus areas:

  • Employee protection and keeping workplace COVID-19 free
  • Digital engagement with doctors and patients
  • Supply chain protection, ensuring optimum utilisation of our factories and working closely with vendors to ensure continuity of supply
  • Enabling work from home for employees wherever and whenever it is necessary
  • Focus on cash collection and cash conservation in the business to ensure adequate liquidity
  • Continuing our focus on improving R&D productivity and throughput
  • Focus on cost optimisation and target higher efficiencies
  • Continue to invest in developing new technologies and innovative products

Recent News:

The drug major reported a massive 70.4 percent year-on-year growth in consolidated profit, driven by operating performance and tax credit, though forex loss limited growth. Consolidated profit increased to Rs 1,813 crore in the quarter compared to Rs 1,064 crore in the same period last year. Tax gain (exceptional) for the quarter was on account of creation of deferred tax asset amounting to Rs 288.28 crore arising out of subsequent measurement attributable to restructuring of an acquired entity. Consolidated revenue from operations grew by 5.3 percent year-on-year to Rs 8,553 crore in September quarter.Company’s debt equity ratio (long-term borrowings + short-term borrowings + current maturities of long-term borrowings) / (Total equity) was reduced to 0.13 percent as of September 2020, compared to 0.18 percent at the end of March 2020, while net worth dropped to Rs 44,699.84 crore at the end of September, from Rs 44,891.90 crore in March this year.

Our View:

Company’s Overall outlook is to continue to focus on growing each of businesses faster than the market in which it operate. R&D investments in developing a differentiated generic pipeline as well as in building specialty pipeline will continue in the coming years. Strategy of developing the specialty business as an additional growth engine has started delivering, with a gradual ramp up in specialty revenues. Company expect this momentum to continue over the next few years although the COVID-19 pandemic and lockdowns may throw up some uncertainties in the near-term. The specialty business is also helping to move up the pharmaceutical value chain and bring in more innovation to the business. Also have invested significant resources over the past few years in building this business and are now focusing on commercial execution to ensure that future cash flows justify these significant investments. Generics will continue to be an important part of the overall healthcare management globally. Focus on healthcare may increase in the post-COVID period and hence generics are likely to retain their importance as an effective and economical health solution. Sun Pharma’s strong positioning in the global generics industry and continued investments for the future will ensure that it remains a prominent player in this space. Despite proactive COVID risk response initiative, company estimates some softening of sales in the near term due to the lockdowns and economic slowdown across various countries, although it is difficult to quantify the impact as of now. The endeavor will be to ensure it is least impacted. Sun Pharma ensured adequate supplies of medicines to its customers across the world despite the supply chain disruptions and the lockdown restrictions in various countries. In a situation where there were multiple disruptions in manufacturing because of various challenges in terms of availability of intermediates, availability of packaging material, etc., they have ensured uninterrupted supply of our products across markets. Sun Pharma has also supplied some of the medicines used for treating COVID-19 symptoms. Key growth drivers include global specialty business, coupled with growth in the rest of the world and API business.Sun Pharma will continue to focus on its objective of growing each business faster than the markets in which it operates. It is focused on profitable growth, sustainable cash flows and controlling costs, objectives that have become more critical during these times of uncertainty. The Company will continue to invest in the development of complex generics and for the enhancement of its global specialty pipeline.The Indian Government has taken many steps to reduce costs and bring down healthcare expenses. Speedy introduction of generic drugs into the market has remained in focus and is expected to benefit the Indian pharmaceutical companies. In addition, the thrust on rural health programs, lifesaving drugs and preventive vaccines also augurs well for the pharmaceutical companies.

As per the mean estimates of earnings projections made by brokers at Bloomberg, the estimated EPS for FY2021 and FY2022 stands at Rs.22.25 and  Rs.23.93 respectively as compared to EPS of Rs 6.90 for FY 2020. The stock is trading at a PE of 37.20.Therefore, taking into consideration that this recommendation of Sun Pharmaceutical Industries Ltd is being given for 1-2years’ time horizon.

Company Operations:

Infosys Limited, incorporated on July 2, 1981, is engaged in consulting, technology, out-sourcing and next-generation services. The Company, along with its subsidiaries, provides business information technology (IT) services comprising application development and maintenance, independent validation, infrastructure management, engineering services comprising product engineering and life cycle solutions and business process management; consulting and systems integration services comprising consulting, enterprise solutions, systems integration and advanced technologies; products, business platforms and solutions to accelerate intellectual property-led innovation, including Finacle, its banking solution, and offerings in the areas of Analytics, Cloud and Digital Transformation. The Company’s segments are Financial Services and Insurance (FSI), Manufacturing and Hi-tech (MFG &Hi-TECH), Energy & utilities, Communication and Services (ECS), Retail, Consumer packaged goods and Logistics (RCL), and Life Sciences and Healthcare (LSH). The Company operates in North America, Europe, India and Rest of the World.The Company offers various services, such as consulting services, business services, technology services and outsourcing services. The Company’s consulting services include enterprise applications, digital transformation, insights and analytics, and change and learning. Its business services include Data Analytics, Digital and Oracle. Its technology services include application management; cloud, infrastructure and security; engineering services; enterprise mobility; Internet of things (IoT) and testing. Its outsourcing services include application outsourcing, business process outsourcing, customer service, finance and accounting, human resources, and sourcing and procurement. Its subsidiaries include Infosys BPO Limited, Infosys Technologies (China) Co. Limited, Infosys Technologies S. de R. L. de C. V., Infosys Technologies (Sweden) AB., Infosys Technologies (Shanghai) Company Limited and Infosys Tecnologia DO BrasilLTDA.response to being declared a public limited company. Thereafter another name change in 2011 gives it the name of Infosys Limited.

Road ahead for IT companies:

IT & BPM industry revenue was estimated at around US$ 191 billion in FY20 at 7.7% growth y-o-y and is estimated that it will grow to US$ 350 billion by 2025. Moreover, revenue from the digital segment is expected to form 38% of the total industry revenue by 2025. Digital economy is estimated to reach Rs. 69,89,000 crore (US$ 1 trillion) by 2025. The domestic revenue of the IT industry was estimated at US$ 44 billion and export revenue was estimated at US$ 147 billion in FY20.Artificial Intelligence (AI) is expected to boost India’s annual growth rate by 1.3% by 2035, as per NITI Aayog. A substantial increase in AI by Indian firms can result in a 2.5% increase in India’s Gross Domestic Product (GDP) in the immediate term.Computer software and hardware sector in India attracted cumulative Foreign Direct Investment (FDI) inflow worth US$ 44.91 billion between April 2000 and March 2020. The sector ranked second in FDI inflow as per the data released by Department for Promotion of Industry and Internal Trade (DPIIT).PE (Private Equity) investment in the sector stood at US$ 11.8 billion across 493 deals in 2019. The Government of India has extended tax holidays to the IT sector for Software Technology Parks of India (STPI) and Special Economic Zones (SEZs). As of February 2020, there were 421 approved SEZs across the country, with 276 of them from IT & BPM and 145 as exporting SEZs.Further, the country is providing procedural ease and single window clearance for setting up facilities. On May 2019, the Ministry of Electronics and Information Technology (MeitY) launched the MeitY Startup Hub (MSH) portal.Also, the Government has identified IT as one of the 12 champion service sectors for which an action plan is being developed. It is setting up a Rs. 5,000 crore (US$ 745.82 million) fund for realizing the potential of these champion service sectors.

Our View:

Infosys pioneered the Global Delivery Model and became the first IT company from India to be listed on NASDAQ. The company is a global leader in consulting, technology, and outsourcing solutions. It enables clients in more than 30 countries to outperform the competition and stay ahead of the innovation curve. Infosys helps enterprises transform and thrive in a changing world through strategic consulting, operational leadership, and the co-creation of breakthrough solutions, including those in mobility, sustainability, big data, and cloud computing.As India is the topmost offshoring destination for IT companies across the world. Having proven its capabilities in delivering both on-shore and off-shore services to global clients, emerging technologies now offer an entire new gamut of opportunities for top IT firms in India. The industry is expected to grow to US$ 350 billion by 2025 and BPM is expected to account for US$ 50 55 billion of the total revenue.For the quarter ended September 2020, Infosys has posted a net profit of Rs 49 bn (up 20.3% YoY). Sales on the other hand came in at Rs 246 bn (up 8.6% YoY).

As per the mean estimates of earnings projections made by brokers at Bloomberg, the estimated EPS for FY2021 and FY2022 stands at Rs.44.32 and  Rs.49.53 respectively as compared to EPS of Rs.42.14 for FY 2020. The stock is trading at a PE of 29.62. Therefore, taking into consideration that this recommendation of Infosys Ltd is being given for 1-2years’ time horizon.

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