4QFY2013 Result Update | Pharmaceutical

May 30, 2013

Sun Pharma
Performance Highlights
(` cr)
Net sales Other income Gross profit Operating profit Net profit

NEUTRAL
CMP Target Price
% chg qoq
7.7 44.3 10.9 (0.1) 14.8

`1,073 -

4QFY2013
3,071 117 2,542 1,260 1,012

3QFY2012
2,852 81 2,293 1,261 881

4QFY2012
2,330 218 1,839 956 820

% chg yoy
31.8 (46.2) 38.2 31.7 23.3

Investment Period
Stock Info Sector Market Cap (` cr) Net Debt (` cr) Beta 52 Week High / Low Avg. Daily Volume Face Value (`) BSE Sensex Nifty Reuters Code Bloomberg Code

Pharmaceutical 111,094 (5,477) 0.5 1,085/554 65,601 1 20,215 6,124 SUN.BO SUNP@IN

Source: Company, Angel Research

Sun Pharmaceutical Industries (Sun Pharma) reported more or less in line set of results during 4QFY2013, especially on the net profit front. The net sales and profit came in at `3,071cr and `1,012cr vs our expectation of `2,800cr and `997cr, respectively. Its net sales reported a 31.8% yoy growth. The OPM also came in at 41.0% vs 41.1% during the last corresponding period. For FY2014, the company has given a guidance of 18-20% on the top-line front. However, on account of the stocks rich valuation, we recommend a Neutral rating on the stock. In line results: For 4QFY2013, Sun Pharma reported net sales of `3,071cr, up 31.8% yoy, mainly driven by exports. The companys OPM remained stable at 41.0% in 4QFY2013 from 41.1% in 4QFY2012. Also, the gross margin came in at 82.8% from 78.9% in 4QFY2012. The net profit during the quarter reported a 23.3% yoy growth to `1,012cr, mostly in line with expectations of `997cr. Outlook and valuation: Sun Pharma is one of the largest and fastest growing Indian pharmaceutical companies. We expect its net sales to post a 12.1% CAGR over FY2012-15 to `15,846cr. However, on account of moderation in OPM, we expect a flat EPS of `39.8 over FY201315. On account of rich valuations, we recommend a Neutral stance on the stock. Key financials (Consolidated)
Y/E March (` cr) Net sales % chg Adj. Net profit % chg EPS (`) EBITDA margin (%) P/E (x) RoE (%) RoCE (%) P/BV (x) EV/Sales (x) EV/EBITDA (x)
Source: Company, Angel Research

Shareholding Pattern (%) Promoters MF / Banks / Indian Fls FII / NRIs / OCBs Indian Public / Others 63.7 8.3 22.7 5.3

Abs. (%) Sensex Sun Pharma

3m 7.2 33.7

1yr 23.9 84.6

3yr 19.9 228.7

FY2012

FY2013

FY2014E

FY2015E

8,006 40.2 2,457 38.3 23.7 40.6 45.2 22.7 25.1 9.1 13.5 33.2

11,239 40.9 3,480 41.7 33.6 43.7 31.9 26.5 31.2 7.9 9.0 20.7

13,509 20.1 3,423 (1.7) 33.0 41.0 32.5 22.0 29.7 6.5 7.3 17.9

15,846 17.2 4,122 20.4 39.8 41.0 27.0 22.0 29.4 5.4 6.0 14.6 Sarabjit Kour Nangra
+91 22 39357600 Ext: 6806 sarabjit@angelbroking.com

Please refer to important disclosures at the end of this report

Sun Pharma | 4QFY2013 Result Update

Exhibit 1: 4QFY2013 performance (Consolidated)

Y/E March (` cr) Net sales Other income Total income Gross profit Gross margin (%) Operating profit Operating margin (%) Interest Depreciation Extraordinary item loss/ ( gain) PBT Provision for taxation PAT before extra-ordinary item Minority interest(MI) Adj. PAT Reported PAT EPS (`) 4QFY2013 3,071 117.4 3,189 2,542 82.8 1,260 41.0 7 89 0 1,281 177 1,104 93 1,012 1,012 9.8 3QFY2013 2,852 81.3 2,933 2,293 80.4 1,261 44.2 (12) 84 0 1,270 237 1,033 152 881 881 8.5 0.9 (25.1) 6.8 (39.2) 14.8 14.8 5.1 (0.1) % chg qoq 7.7 44.3 8.7 10.9 4QFY2012 2,330 218.1 2,548 1,839 78.9 956 41.1 11 82 0 1,081 177 904 84 820 820 7.9 18.5 0.3 22.1 10 23.3 23.3 (36.2) 7.9 31.7 % chg yoy 31.8 (46.2) 25.1 38.2 FY2013 11,239 372.7 11,612 9,159 81.5 4,906 43.7 44 336 584 4,898 821 4,078 486 3,481 3,008 33.6 FY2012 8,006 192.1 8,198 6,364 79.5 3,251 40.6 28 291 (232) 3,123 313 2,810 385 2,457 2,657 23.7 56.8 162.0 45.1 26.1 41.7 13.2 57.2 15.5 50.9 % chg 40.4 94.0 41.6 43.9

Source: Company, Angel Research

Exhibit 2: 4QFY2013 Actual vs Angel estimates

(` cr) Net sales Other income Operating profit Tax Adj. Net profit
Source: Company, Angel Research

Actual 3,071 117 1,260 177 1,012

Estimates 2,800 218 1,201 393 997

Variance (%) 9.7 (46.2) 4.9 (54.9) 1.5

Higher-than-expected top-line performance: For 4QFY2013, Sun Pharma reported net sales of `3,071cr, up 31.8% yoy, mainly driven by exports. The growth in the top-line was mainly driven by US formulations, which grew by 63% yoy during the period to close the quarter at US$330mn, accounting for 57% of the overall sales. Taro on the other hand clocked sales of US$165mn, registering a growth of 14% yoy. ROW, also posted a healthy growth of 13% yoy to end the period at US$73mn. During the quarter, the URL acquisition achieved financial closure. The nonColcrys (Colchicine, USP) generic assets of URL Pharma are now owned and managed by Sun Pharma. With a portfolio of 107 products represented by over 230 ANDAs, it expands Sun Pharmas US portfolio. Overall, exports sales of finished dosage products stood at `2,181cr in 4QFY2013, accounting for 70% of total sales.

May 30, 2013

Sun Pharma | 4QFY2013 Result Update

On the regulatory front, abbreviated new drug applications (ANDAs) for 9 products were filed during the quarter. With these, ANDAs for 449 products cumulatively have been filed by Sun Pharma and Taro with the USFDA. ANDAs for 9 products received approval in 4QFY2013. Currently, ANDAs for 138 products await USFDA approval, including 17 tentative approvals.

Exhibit 3: Sales trend

2,700
2,400 2,100 1,908 1,487 1,891 2,339

2,103

1,800
(` cr)

1,500
1,200 900 600 877

810 588

788

780

300 0 4QFY2012 1QFY2013 Domestic Formulation

Source: Company, Angel Research

2QFY2013 3QFY2013 4QFY2013 Export Formulation, Bulk and others

OPM at 41.0%: The companys OPM remained stable at 41.0% in 4QFY2013

from 41.1% in 4QFY2012. Also, the gross margin came in at 82.8% from 78.9% in 4QFY2012.

Exhibit 4: OPM trend (%)

50.0
45.8 45.0 41.1
(%)

44.2

44.2 41.0

40.0

35.0

30.0 4QFY2012 1QFY2013 2QFY2013 3QFY2013 4QFY2013

Source: Company, Angel Research

Adj. net profit came in line with expectations: The net profit during the quarter reported a 23.3% yoy growth to `1,012cr, mostly in line with expectations of `997cr.

May 30, 2013

Sun Pharma | 4QFY2013 Result Update

Exhibit 5: Adjusted Net profit trend

1,100 1,000 1,012

900 800
700 600 500 668

881
796

711

(` cr)

400 300
200 100

0
4QFY2012 1QFY2013 2QFY2013 3QFY2013 4QFY2013
Source: Company, Angel Research

Concall takeaways

For FY2014, the Management has guided for an 18-20% sales growth. During 4QFY2013, the company recorded URLs 2 months sales and DUSAs 3 months sales. DUSA and URL businesses contributed US$30mn sales in 4QFY2014. R&D expenses for FY2014 are expected to be 6-8% of sales. The domestic business grew by 16% yoy, adjusted for a one-off sale in the same quarter last year. Tax rate of 18-20% of PBT for FY2014. Capex for FY2014 guided for `800cr.

Investment arguments
Strongest ANDA pipeline: Sun Pharma, with the acquisitions of DUSA and URL, now has become strong in the US region, with US now accounting for 58% of its FY2013 sales. In terms of ANDAs, the company cumulatively has 449 products. As of March 31, 2013, the cumulative approvals stood at 311 while ANDAs for 138 products now await USFDA approval, including 17 tentative approvals. Thus, going forward, the US would continue to post a robust growth. We expect the region to post a CAGR of 18.2% during FY2012-15E, contributing 58% of the overall formulation sales of the company in FY2015. Domestic business: Sun Pharmas domestic formulation business is one of the fastest growing companies in the Indian pharmaceutical Industry. It contributed 28% to the companys total turnover in FY2013. Sun Pharma is ranked third and holds a market share of 4.9% in domestic formulation market, with exposure to psychiatry, neurology, CVS, diabetic and gastroenterology segments. In FY2013, Sun Pharma launched 25 products in the domestic market. Healthy balance sheet: Sun Pharma has one of the strongest balance sheets in the sector, with cash of ~`5,000cr. The same can continue to support the

May 30, 2013

Sun Pharma | 4QFY2013 Result Update

Management in inorganic growth and in scouting for acquisitions, especially in the US and the emerging markets. Outlook and valuation: Sun Pharma is one of the largest and fastest growing Indian pharmaceutical companies. We expect its net sales to post a 12.1% CAGR to `15,846cr. However, on account of moderation, we expect a flat EPS of `39.8 over FY201315. On account of rich valuations, we recommend a Neutral stance on the stock.

Exhibit 6: Key assumptions

FY2014E Net sales growth (%) Growth in employee expenses (%) Operating margins (%) Capex (`cr)
Source: Company, Angel Research

FY2015E 17.2 17.3 41.0 800

20.1 20.2 41.0 800

Exhibit 7: One-year forward PE band

1,200 1,000 800
600 400 200 -

Source: Company, Angel Research

Exhibit 8: Recommendation Summary

Company Alembic Pharma. Aurobindo Pharma Cadila Healthcare Reco Neutral Buy Buy CMP Tgt. price (`) 134 177 775 (`) 264 962 Upside % 49.0 24.1 PE (x) EV/Sales (x) 9.7 9.2 16.1 1.3 1.1 2.0 FY2015E EV/EBITDA (x) 6.6 7.0 11.1 FY12-15E 26.1 58.2 14.8 FY2015E 34.0 12.0 18.5 34.7 18.0 24.7 CAGR in EPS (%) RoCE (%) RoE (%)

Cipla
Dr Reddy's Dishman Pharma GSK Pharma* Indoco Remedies Ipca labs Lupin Ranbaxy* Sanofi India* Sun Pharma

Buy
Buy Buy Neutral Buy Accumulate Accumulate Neutral Neutral Neutral

383
2,105 75 2,300 63 599 768 382 2,610 1073

444
2,535 206 78 676 877 -

15.8
20.4 174.7 23.8 12.8 14.2 -

Source: Company, Angel Research; Note: *December year ending

May 30, 2013

Apr-05 Jul-05 Oct-05 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
10 15x 20x 25x

17.3
16.6 3.4 27.6 8.1 13.3 18.4 17.0 26.3 27.0

2.8
2.4 0.8 5.3 0.8 1.9 2.4 1.1 2.6 6.0

12.7
12.1 3.9 18.7 5.4 9.0 11.3 8.8 15.8 14.6

1.4
10.8 47.9 4.8 15.8 30.6 29.1 (6.8) 13.4 15.8

15.7
18.3 12.0 36.1 15.3 26.0 28.5 13.1 15.9 29.4

15.9
21.8 13.7 31.0 14.7 25.3 24.8 19.1 16.7 22.0

Sun Pharma | 4QFY2013 Result Update

Company background
Sun Pharma is an international specialty pharma company, with a large presence in the US and India, and a footprint across 40 other markets. In India and rest of the world markets, the key chronic therapy areas for the company are cardiology, psychiatry, neurology, gastroenterology, diabetology etc. The company is a market leader in specialty therapy areas in India. In India, the company has emerged as a leading pharma company where it is the third largest player. Also, in the US, a key geography, the company has expanded significantly through both in-organic and organic routes.

May 30, 2013

Sun Pharma | 4QFY2013 Result Update

Profit & Loss statement (Consolidated)

Y/E March (` cr) Gross sales Less: Excise duty Net sales Other operating income Total operating income % chg Total expenditure Net raw materials Other mfg costs Personnel Other EBITDA % chg (% of Net Sales) Depreciation & amort. EBIT % chg (% of Net Sales) Interest & other charges Other income (% of PBT) Share in profit of Asso. Recurring PBT % chg Extraordinary expense/(inc.) PBT (reported) Tax (% of PBT) PAT (reported) Add: Share of earnings of asso. Less: Minority interest (MI) Prior period items PAT after MI (reported) ADJ. PAT % chg (% of Net Sales) Basic EPS (`) Fully Diluted EPS (`) % chg 205 14.5 1,415 (27.4) (1.3) 1,415 67.9 4.8 1,347 (4) 1,351 1,350 (24.7) 33.7 13.0 13.0 (25.7) 273 13.4 2,036 43.9 (41.6) 2,036 128.4 6.3 1,907 91 1,816 1,777 31.7 31.7 17.5 17.5 34.4 FY2010 FY2011 FY2012 FY2013 3,981 27 4,007 237 4,244 (0.8) 2,644 1,098 221 401 925 1,363 (26.9) 34.0 153 1,210 (30.5) 30.2 5,807 85 5,721 5,721 34.8 3,754 1,461 314 800 1,494 1,967 44.3 34.4 204 1,763 45.7 30.8 8,127 107 8,006 14 8,020 40.2 4,755 1,641 350 1,188 1,576 3,251 65.2 40.6 291 2,974 68.7 37.1 28 178 5.7 3,123 53.4 (232) 3,123 313.2 10.0 2,810 385 2,657 2,457 38.3 33.2 23.7 23.7 35.3 11,389 151 11,239 61 11,300 40.9 6,333 2,080 491 1,535 2,811 4,906 50.9 43.7 336 4,570 53.7 40.7 44 312 6.4 4,898 56.8 584 4,898 820.6 16.8 4,078 486 3,008 3,480 41.7 26.8 33.6 33.6 41.7 3,423 3,423 (1.7) 25.3 33.0 33.0 (1.7) 4,122 4,122 20.4 26.0 39.8 39.8 20.4 535 588 4,826 (1.5) 4,826 868.7 18.0 3,957 5,744 19.0 5,744 1,033.9 18.0 4,710 FY2014E 13,690 181 13,509 61 13,570 20.1 7,973 2,567 590 1,844 2,972 5,536 12.8 41.0 398 5,138 12.4 38.0 44 312 6.5 FY2015E 16,059 212 15,846 61 15,907 17.2 9,352 3,011 692 2,163 3,486 6,494 17.3 41.0 438 6,056 17.9 38.2 44 312 5.4

May 30, 2013

Sun Pharma | 4QFY2013 Result Update

Balance Sheet (Consolidated)

Y/E March (` cr) SOURCES OF FUNDS Equity share capital Preference capital Reserves & surplus Shareholders funds Minority interest Total loans Deferred tax liability Other Long Term Liabilities Long Term Provisions Total liabilities APPLICATION OF FUNDS Gross block Less: Acc. depreciation Net block Capital work-in-progress Goodwill Investments Long term long & adv. Current assets Cash Loans & advances Other Current liabilities Net current assets Others Total assets 3,712 607 856 2,249 758 2,954 8,104 2,334 801 1,533 145 406 3,066 4,547 2,026 2,521 235 772 2,230 379 5,736 2,205 910 2,651 1,463 4,273 10,411 5,427 2,497 2,930 345 1,022 2,213 534 8,534 3,367 1,137 4,031 2,301 6,234 13,276 7,566 2,833 4,732 345 1,133 2,412 1,009 9,634 4,059 1,080 4,496 3,202 6,432 16,063 8,366 3,232 5,134 345 1,133 2,412 1,212 12,128 5,426 1,298 5,404 3,849 8,279 18,515 9,166 3,670 5,496 345 1,133 2,412 1,421 16,327 8,466 1,522 6,339 4,515 11,813 22,619 8,104 104 7,725 7,829 193 171 (89) 104 9,380 9,483 847 426 (365) 7 13 10,411 104 12,063 12,166 1,161 321 (520) 9 139 13,276 104 14,041 14,145 1,635 198 (711) 9 787 16,063 16,858 16,961 2,170 198 (711) 9 787 18,515 20,374 20,477 2,758 198 (711) 9 787 22,619 104 104 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

May 30, 2013

Sun Pharma | 4QFY2013 Result Update

Cash Flow Statement (Consolidated)

Y/E March (` cr) Profit before tax Depreciation (Inc)/Dec in working capital Direct taxes paid Cash Flow from Operations (Inc.)/Dec.in Fixed Assets (Inc.)/Dec. in Investments Other income Cash Flow from Investing Issue of Equity Inc./(Dec.) in loans Dividend Paid (Incl. Tax) Others Cash Flow from Financing Inc./(Dec.) in Cash Opening Cash balances Closing Cash balances FY2010 FY2011 FY2012 FY2013 1,415 153 (467) 162 938 (174) (1,207) (1,381) 8 (333) (294) (619) (1,062) 1,669 607 2,036 204 (131) 87 2,022 (2,304) 837 (1,467) (235) (344) 1,620 1,042 1,597 607 2,205 3,123 291 (923) 466 2,026 (989) 17 (972) 233 (424) 300 109 1,163 2,205 3,367 4,900 336 18 821 4,434 (2,139) (199) (2,338) 771 (606) (1,569) (1,404) 692 3,367 4,059 FY2014E 4,826 398 (682) 869 3,673 (800) (800) (0) (606) (901) (1,507) 1,367 4,059 5,426 FY2015E 5,744 438 (703) 1,034 4,445 (800) (800) (606) 1 (605) 3,040 5,426 8,466

May 30, 2013

Sun Pharma | 4QFY2013 Result Update

Key Ratios
Y/E March Valuation Ratio (x) P/E (on FDEPS) P/CEPS P/BV Dividend yield (%) EV/Sales EV/EBITDA EV / Total Assets Per Share Data (`) EPS (Basic) EPS (fully diluted) Cash EPS DPS Book Value Dupont Analysis EBIT margin Tax retention ratio Asset turnover (x) ROIC (Post-tax) Cost of Debt (Post Tax) Leverage (x) Operating ROE Returns (%) ROCE (Pre-tax) Angel ROIC (Pre-tax) ROE Turnover ratios (x) Asset Turnover (Gross Block) Inventory / Sales (days) Receivables (days) Payables (days) WC cycle (ex-cash) (days) Solvency ratios (x) Net debt to equity Net debt to EBITDA Interest Coverage (EBIT/Int.) (0.1) (0.3) (0.2) (0.9) (0.3) (0.9) (0.3) (0.8) (0.3) (0.9) (0.4) (1.3) 1.9 88 88 34 182 1.7 81 75 47 141 1.6 81 69 57 112 1.7 81 65 64 85 1.7 85 69 62 70 1.8 97 79 62 71 15.7 19.9 18.2 19.0 24.9 20.5 25.1 37.8 24.5 31.2 48.0 31.8 29.7 46.4 22.0 29.4 49.9 22.0 30.2 95.2 0.6 18.5 0.0 -0.1 16.0 30.8 93.7 0.7 21.0 0.0 0.0 21.0 37.1 90.0 0.9 29.6 6.8 0.0 29.6 40.7 83.3 1.0 34.9 14.2 0.0 34.9 38.0 82.0 1.1 33.7 18.3 0.0 33.7 38.2 82.0 1.2 36.6 18.3 0.0 36.6 13.0 13.0 14.5 13.8 75.6 17.5 17.5 19.5 3.5 91.6 25.7 25.7 26.2 4.3 117.5 40.3 40.3 37.9 5.0 136.6 33.0 33.0 36.9 5.0 163.8 39.8 39.8 44.0 5.0 197.7 82.2 73.8 14.2 1.3 27.6 81.2 13.7 61.2 55.0 11.7 0.3 19.1 55.6 10.5 41.8 40.9 9.1 0.4 13.5 33.2 8.1 26.6 28.3 7.9 0.5 9.0 20.7 6.3 32.5 29.1 6.5 0.5 7.3 17.9 5.4 27.0 24.4 5.4 0.5 6.0 14.6 4.2 FY2010 FY2011 FY2012 FY2013 FY2014E FY2015E

May 30, 2013

10

Sun Pharma | 4QFY2013 Result Update

Research Team Tel: 022 - 3935 7800 DISCLAIMER

E-mail: research@angelbroking.com

Website: www.angelbroking.com

This document is solely for the personal information of the recipient, and must not be singularly used as the basis of any investment decision. Nothing in this document should be construed as investment or financial advice. Each recipient of this document should make such investigations as they deem necessary to arrive at an independent evaluation of an investment in the securities of the companies referred to in this document (including the merits and risks involved), and should consult their own advisors to determine the merits and risks of such an investment. Angel Broking Limited, its affiliates, directors, its proprietary trading and investment businesses may, from time to time, make investment decisions that are inconsistent with or contradictory to the recommendations expressed herein. The views contained in this document are those of the analyst, and the company may or may not subscribe to all the views expressed within. Reports based on technical and derivative analysis center on studying charts of a stock's price movement, outstanding positions and trading volume, as opposed to focusing on a company's fundamentals and, as such, may not match with a report on a company's fundamentals. The information in this document has been printed on the basis of publicly available information, internal data and other reliable sources believed to be true, but we do not represent that it is accurate or complete and it should not be relied on as such, as this document is for general guidance only. Angel Broking Limited or any of its affiliates/ group companies shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report . Angel Broking Limited has not independently verified all the information contained within this document. Accordingly, we cannot testify, nor make any representation or warranty, express or implied, to the accuracy, contents or data contained within this document. While Angel Broking Limited endeavours to update on a reasonable basis the information discussed in this material, there may be regulatory, compliance, or other reasons that prevent us from doing so. This document is being supplied to you solely for your information, and its contents, information or data may not be reproduced, redistributed or passed on, directly or indirectly. Angel Broking Limited and its affiliates may seek to provide or have engaged in providing corporate finance, investment banking or other advisory services in a merger or specific transaction to the companies referred to in this report, as on the date of this report or in the past. Neither Angel Broking Limited, nor its directors, employees or affiliates shall be liable for any loss or damage that may arise from or in connection with the use of this information. Note: Please refer to the important `Stock Holding Disclosure' report on the Angel website (Research Section). Also, please refer to the latest update on respective stocks for the disclosure status in respect of those stocks. Angel Broking Limited and its affiliates may have investment positions in the stocks recommended in this report.

Disclosure of Interest Statement 1. Analyst ownership of the stock 2. Angel and its Group companies ownership of the stock 3. Angel and its Group companies' Directors ownership of the stock 4. Broking relationship with company covered

Sun Pharma No No No No

Note: We have not considered any Exposure below ` 1 lakh for Angel, its Group companies and Directors.

Ratings (Returns):

Buy (> 15%) Reduce (-5% to -15%)

Accumulate (5% to 15%) Sell (< -15%)

Neutral (-5 to 5%)

May 30, 2013

11