COMPANY UPDATE 07 FEB 2020

Sun Pharma BUY

HDFC securities Institutional Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Specialty scale up holds promise We resume coverage on Sun Pharma with a Buy rating and TP of Rs 500 based on 22x FY22 EPS. Sun’s business outlook for the next two years will be driven by ramp up in specialty portfolio led by Illumya and Cequa. We expect the improved traction in specialty sales will drive operating leverage and aid margin expansion. This, along with healthy growth in India and EM markets will drive 14% earnings CAGR over FY20-22e. The stock trades at attractive valuation of 19x FY22 EPS , ~10% discount to its 5-year average PER.

HIGHLIGHTS OF THE QUARTER

Specialty business will drive growth - We expect Sun's specialty portfolio to post a 20% CAGR over the next two years driven by Ilumya (improving trends) and Cequa (recently launched). Sun launched Absorica LD (20% lower dose) in order to protect the market share of its largest product (Absorica) which faces generic competition in Dec 20.

US generics stabilized – Sun’s US generics business has stabilized in the past few quarters as market share

gains have offset price erosion. We forecast generics biz (inc Taro) to decline 3% over the next two years.

India business to grow in line with industry - Sun ranks no.1 in India market and has one of the highest productivity metrics among peers. It is looking to expand field force by 10% which will further drive growth in our view.

Key downside risks: slower ramp up in Ilumya, higher price erosion in the US, lower growth in the India, adverse outcome on SEBI's probe on whistle-blower complaint, drug price fixing lawsuits in the US.

Q3 revenues at Rs 81.5bn (+5% YoY) were largely in line. EBIDTA margin were slightly below expectation at 22.6% (down 523bps YoY, +55bps QoQ) led by higher other expenses (lower forex gain) and higher R&D cost (6.4% of sales, +52bps YoY, +44bps QoQ).

Key call highlights – a) Global specialty sales at USD118mn (+30% QoQ); b) FY20 R&D spend lower than initial guidance of 8-9%; c) SEBI probe – no further update; d) Net debt ex Taro at USD 410mn.

Financial Summary (Consolidated) (Rs mn) 3QFY20 3QFY19 YoY (%) 2QFY20 QoQ (%) FY18 FY19 FY20E FY21E FY22E Net Sales 80,387 76,567 5.0 79,492 1.1 260,659 286,863 317,511 352,259 383,323 EBITDA 18,414 21,529 (14.5) 17,897 2.9 54,741 63,077 71,908 76,934 90,013 APAT 9,135 12,419 (26.4) 10,641 (14.2) 32,324 38,799 41,958 44,349 54,275 Diluted EPS (Rs) 3.8 5.2 (26.4) 4.4 (14.2) 13.5 16.2 17.5 18.5 22.6 P/E (x) 31.6 26.3 24.4 23.0 18.8 RoCE (%) 9.2 10.0 10.3 10.6 11.5 RoE (%) 8.5 9.4 9.2 8.9 9.8 Source: Company, HDFC sec Inst Research

INDUSTRY PHARMA CMP (as on 06 Feb 2020) Rs 431 Target Price Rs 500 Nifty 12,138 Sensex 41,306 KEY STOCK DATA Bloomberg SUNP IN No. of Shares (mn) 2,399 MCap (Rs bn) / ($ mn) 1,033/14,504 6m avg traded value (Rs mn) 2,746 STOCK PERFORMANCE (%) 52 Week high / low Rs 484/345 3M 6M 12M Absolute (%) 0.6 3.0 3.4 Relative (%) (1.4) (8.7) (8.3) SHAREHOLDING PATTERN (%) Sep-19 Dec-19 Promoters 54.55 54.56 FIs & Local MFs 18.53 19.07 FPIs 14.7 13.89 Public & Others 12.23 12.48 Pledged Shares* 5.68 5.49 Source : BSE, *% of total

Bansi Desai,CFA bansi.desai@hdfcsec.com +91-22-6171-7341

SUN PHARMA: COMPANY UPDATE

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Resume coverage with a Buy rating We estimate Sun’s revenues and earnings to post

10% and 14% CAGRs over FY20- 22 driven by growth in India and specialty business.

We estimate Sun's generic business (including Taro) to post a 3% decline on the back of low visibility of any big ticket launches and price erosion in the base business.

India business is expected to post a 10% CAGR over FY20-22 in line with the industry.

We assume core EBITDA margin to expand by 80bps over the next two years as higher investments in R&D and promotion costs partly offset operating leverage gains.

We model R&D costs at 7-7.5% of sales in FY21/22e.

Revenue mix summary (Rs mn) FY17 FY18 FY19 FY20E FY21E FY22E FY19-22E Comments India 77,491 80,293 73,483 92,177 101,394 111,534 17% Growth in line with Industry average US 137,588 87,466 106,713 104,437 112,780 113,913 3% Specialty business to drive revenues

Taro 52,682 35,397 39,550 35,953 34,343 33,391 -7% Sales decline as price erosion offset volume growth

Other US 84,906 52,069 67,163 68,484 78,437 80,521 8% 20% growth in specialty business to drive revenues

ROW 25,832 29,740 34,554 46,395 53,354 61,357 24% Growth driven by leveraging specialty portfolio in Western Europe, Canada

EM 45,299 48,392 53,625 53,106 59,478 66,616 5% Focus markets are Russia, Romania, LatAm and South Africa. Currency fluctuations coud impact growth

API & Others 16,433 14,768 18,488 21,381 25,274 29,876 17% Mostly used for captive purpose

Net sales 302,642 260,659 286,863 317,495 352,280 383,294 11% Driven by specialty business in US and EM markets

EBITDA margin 32.3% 20.8% 21.7% 22.3% 21.5% 23.1%

Higher other expense and R&D will cap margin expansion

Source: Company, HDFC sec Inst Research

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Specialty portfolio to drive US growth Sun's specialty business accounted for c.21% of US

revenues in FY19. There are currently seven key assets in the market - Absorica (Ranbaxy), Levulan (Dusa), Bromsite, Odomzo, Xelpros and Ilumya (launched in Oct 2018) and Cequa.

Specialty revenues should gain momentum over the next two years, driven by the ramp up in Ilumya and Cequa. The global specialty portfolio grew 30% QoQ to USD118mn in 3QFY20.

We expect Ilumya to ramp up gradually and drive operating leverage and margin expansion. We expect specialty revenues to increase from c.USD328mn in FY19 to USD608mn in FY22e.

US revenues to post a 8% CAGR Specialty revenues will be driven by Ilumya

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research Ilumya ramp up will be key Brand Molecule Company Dosage frequency Class Status Ilumya Tildrakizumab Sun every 12 weeks IL-23 In Market Stelara Ustekinumab J&J every 12 weeks IL-12, IL-23 In Market Cosentyx Secukinumab Novartis every 4 weeks IL-17A In Market Taltz Ixekizumab Eli Lilly every 2-4 weeks IL-17A In Market Tremfya Guselkumab J&J every 8 weeks IL-23 In Market Siliq Brodalumab Valeant every 2 weeks IL-17A In Market Skyrizi Risankizumab Abbvie every 12 weeks IL-23 In Market Source: Company, HDFC sec Inst Research

The specialty portfolio consists of in-licensed, early-to-late-stage clinical candidates, and acquired patented products, as well as in-house developed assets. The key focus segments are Dermatology, Ophthalmic, Oncology and CNS

In-licensed from Merck in Sep 2014 US FDA approval received in Mar 2018 Sun's product offers advantage in terms of lower dosing frequency but Abbvie's product has same dosing frequency and better efficacy compared with Sun We build revenues of USD200/250mn in FY21/22e Peak sales estimate of USD300mn in FY23e

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Product Indication Timeline Sales Estimates (USD mn)

Comments FY19 FY20E FY21E FY22E

Absorica Acne In Market 144 144 114 60

TRx declined in FY19, led by changes in the co pay program; however, the product is more profitable now. Sun settled with Actavis (Teva) for a generic launch in Dec 27, 2020 Sun launched Absorica LD to protect the franchise. Sun has also filed Isotretinoin based NDAs to extend the longevity of the brand

Ilumya Plaque Psoriasis In Market 35 70 150 200

Launched in US in Q3FY19, uptake has been encouraging. c.1,200 doctors have prescribed Ilumya. (vs 8,000 covered doctors for biologics and 2,000 top prescribers) There are currently six IL-based treatment available in market. Ilumya offers advantage against competing drugs in terms of lesser dosing frequency (once every quarter vs equal or higher frequency for others) however, it lag behinds others on efficacy. For Europe, Sun entered into licensing agreement with Almirall on the development and commercialization in Europe for Psoriasis.

Levulan Kerastick

Actinic Keratosis In Market 85 87 90 98

Ameluz is a competing drug to Levulan, however, Sun (Dusa) has sued Biofrontera (markets Ameluz) for trade secret misappropriation and patent infringement and has been granted preliminary injunctive relief from using Dusa's proprietary trade secret information

Odomzo Skin cancer In Market 25 40 60 60 Roche's Erivedge (Vismodegib) approved in 2012 is the competing drug. Sun's large part of sales are from oncologists and they are trying to promote this to dermatologist as 70% of prescribers of the product are dermatologists. Ramp up is slower than expected.

Bromsite Ophthalmic In Market 37 50 70 70 Lupin has filed P-IV on BromSite. The patent expires on Aug 2029 and NP exclusivity ended on Apr 2019.

Cequa Dry eye (Ophthalmic) Q2 FY20 - 20 40 40

Launch expected in Q2 FY20, received approval in Aug 2018 There are two competing drugs in the market - Allergan's Restasis and Shire's Xiidra (broader label). Generic competition in Restasis could affect market dynamics and limit Cequa's potential ramp up Teva and Mylan can launch generic in 2019

Xelpros Ophthalmic In Market - 5 20 20 In-licensed from SPARC. Sun received approval in Sept 2018, post Halol facility clearance. Peak sales potential is USD 25-50m

Yonsa Prostate cancer In Market 2 5 10 10 Competing drug is Zytiga. Yonsa has similar absorption rate at a lower dose (500mg) as compared to Zytiga (1000mg). Yonsa's ramp up is slower than expected. Further, a generic in Zytiga will further limit Yonsa's market share gains.

AzaSite Ophthalmic In Market - - - - Acquired Insite vision. The product is partnered and Sun receives royalty Besivance Ophthalmic In Market - - - - Acquired Insite vision. The product is partnered and Sun receives royalty

MM-II Osteoarthritis Early stage developement - - - -

In-licensed from Moebius Medical. MM-II is a novel non-opioid product. Clinical data showed superior efficacy & similar safety of MM-II vs. standard of care (hyaluronic acid) for treatment of pain in osteoarthritis. Sun Pharma to fund further development of MM-II including completion of Phase 2 and Phase 3 clinical programs and any required preclinical work necessary for regulatory approval

AzaSite Plus Ophthalmic Early stage developement - - - - Acquired Insite vision

DexaSite Ophthalmic Early stage developement - - - - Acquired Insite vision

Total 328 431 584 608 Source: Company, HDFC sec Inst Research

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Taro revenue expected to decline by 4% over next two years

Taro's US revenues declined by 14% from USD865mn in FY16 to c.USD547mn in FY19, led by sharp price erosion in the US on account of channel consolidation and increased competition.

Gross margins contracted by 1000bps over the past 3 years, which led to EBITDA margin decline of 66% in FY16 to 47% in FY19. We forecast margin to decline further to 44% as competition in the derma category will drive higher erosion.

Revenues to decline by 4% in FY20-22e Margin compression risk persists

Source: Company, HDFC sec Inst Research Source: Company, HDFC sec Inst Research

Sun has 94 ANDAs and 4 NDAs pending approval in the US. Taro's pipeline includes 23 pending ANDAs and 7 tentative approvals

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India business to grow in line with industry growth Sun is ranked No.1 in the India Pharma market (IPM)

with an 8.2% market share (as per AIOCD MAT Dec 2019). It is ranked No. 1 with 10 classes of doctor. Sun's sales force has one of the highest productivity

metrics among peers. In FY20, revenue growth rebounded on low base of FY19 (distribution changes). We forecast 10% CAGR over FY20-22e, in line with the industry average.

Top 5 therapies Market Share

change in MS Growth (15-19)

Dec 15 Dec 19 Company Market Cardiac 23% 23% 0.1% 13 10 Anti Diabetic 16% 23% 7.1% 23 14 Anti-Infectives 21% 14% -6.7% 2 6 Respiratory 11% 12% 0.7% 14 8 Gastro Intestinal 7% 7% -0.2% 12 8

(Rs mn) Dec 15 Dec 16 Dec 17 Dec 18 Dec 19 3 yr CAGR AIOCD Sales 3,840 4,126 4,730 5,418 12.2% Growth 13.9 7.5 14.6 14.5 Price 2.3 0.9 3.8 6.5 Volume 7.2 1.8 6.7 3.6 New Introduction 4.5 4.8 4.1 4.4 NLEM (%) 18% 16% 14% 13% 13% Non-NLEM (%) 82% 84% 86% 87% 87% Top 10 Brands Dec 15 Dec 16 Dec 17 Dec 18 Dec 19 3 yr CAGR Gluconorm-G 132 174 193 231 254 14% Huminsulin 159 173 193 169 183 2% Budamate 79 103 112 117 130 8% Gibtulio 0 4 44 94 125 229% Ondero 1 28 50 79 110 58% Ondero Met 0 15 41 66 97 86% Tonact 95 97 89 92 97 0% Ivabrad 35 40 52 75 91 32% Cidmus 0 0 7 41 86 NA Rablet-D 51 61 67 72 73 6% Source: Company, HDFC sec Inst Research

SUN PHARMA: COMPANY UPDATE

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Quarterly Financials Snapshot (Consolidated) (Rs mn) 3QFY20 3QFY19 % Chg 2QFY20 % Chg Net Sales 81,549 77,402 5.4 81,234 0.4 EBITDA 18,414 21,529 (14.5) 17,897 2.9 Other income 1,199 1,931 (37.9) 2,009 (40.3) Depreciation 5,470 4,711 16.1 4,733 15.6 Interest 630 1,448 (56.5) 839 (25.0) PBT 13,513 17,301 (21.9) 14,334 (5.7) Tax 3,276 2,709 20.9 2,660 23.2 Minority interest 1,059 2,192 (51.7) 991 6.8 Adjusted PAT 9,135 12,419 (26.4) 10,641 (14.2) Reported PAT 9,135 12,419 (26.4) 10,641 (14.2) EBITDA margins (%) 22.6% 27.8% -523 bps 22.0% 55 bps Gross margins (%) 73.0% 72.0% 100 bps 72.1% 94 bps Margin Analysis 3QFY20 3QFY19 YoY (bps) 2QFY20 QoQ (bps) Material Expenses % Net Sales 27.0 28.0 (100) 27.9 (94) Employee Expenses % Net Sales 19.0 19.3 (32) 20.0 (96) R&D Expenses % Net Sales 6.4 5.8 52 5.9 44 Other Expenses % Net Sales 25.1 19.1 604 24.2 91 EBITDA Margin (%) 22.6 27.8 (523) 22.0 55 Tax Rate (%) 24.2 15.7 859 18.6 568 APAT Margin (%) 11.2 16.0 (484) 13.1 (190) Segmental Quarterly Performance (Rs mn) 3QFY20 3QFY19 % Chg 2QFY20 % Chg Formulation 75,031 72,010 4.2 74,533 0.7 US 24,924 26,059 (4.4) 23,898 4.3 India 25,170 22,353 12.6 25,148 0.1 Emerging Markets 13,901 14,618 (4.9) 14,117 (1.5) ROW 11,035 8,981 22.9 11,371 (3.0) API 5,032 4,261 18.1 4,681 7.5 Others 324 296 9.4 278 16.7 other operating income 1,162 835 39.2 1,742 (33.3) Total 81,549 77,402 5.4 81,234 0.4 Source: HDFC sec Inst Research

Revenue grew 5%/1% YoY/QoQ, inline with estimates Raw material cost was lower QoQ due to higher contribution from India branded business Other expenses were higher owing to lower forex gain, promotional spend for specialty, as well as consolidation of Pola Pharma The expense for Modafinil litigation during the quarter was not material R&D exp for FY20 will be lower than the guided range of 8-9%. However, it will inch up in FY21 as Ilmuya trials for additional indication begins US revenues improved QoQ led by seasonal impact of Absorica and Levulan. Ilumya, Odomzo and Cequa also contibuted

SUN PHARMA: COMPANY UPDATE

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Valuation and risks Valuation We rate Sun a Buy with a target price of Rs 500 based

on 22x FY22 EPS. Our target multiple is at 10% premium to its peers given its dominant position in India market.

India and the US are key markets for Sun and account for c.63% of overall revenues. In India, Sun ranks no. 1 with 8.2% market share and we expect this business to grow in line with the industry average. In the US, the generics business, including Taro, has a muted growth outlook. The specialty business is expected to report strong growth driven by the ramping up of

Ilumya and Cequa. However, higher investments in R&D and promotional spend on specialty will drag margins in the near term.

Risks Delay in resolution of Halol 483s, higher price erosion

in the US, lower growth in the India business, slower ramp up in Ilumya, adverse outcome on ongoing SEBI probe on whistle-blower complaint, DOJ investigation, and drug price fixing lawsuit in the US.

PER - Sun

Source: Bloomberg, HDFC sec Inst Research, Historical consensus EPS estimates

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Peer Set Comparison

Company Market Cap (Rs.

bn)

CMP (Rs./ Sh) RECO TP EPS CAGR

FY20-22E

PER(X) EV/ EBITDA (X) ROE

FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E

Aurobindo 299 512 NA NA 10.5% 10.9 9.5 8.9 7.1 6.1 5.7 17.7 17.3 15.8 Cipla 354 439 BUY 510 10.2% 21.0 20.4 17.3 11.8 11.0 9.4 10.6 10.0 10.8 Dr. Reddy's 525 3,165 NEUTRAL 3,440 14.5% 24.1 22.4 18.4 16.4 13.1 11.1 14.4 13.7 14.6 Lupin 331 728 NEUTRAL 705 13.7% 26.7 24.8 20.6 13.3 11.7 9.9 8.4 8.5 9.4 Sun 1,033 431 BUY 500 13.7% 24.5 23.2 19.0 13.8 12.5 10.2 10.2 10.1 10.9 Torrent 340 2,001 BUY 2,250 20.3% 36.3 30.9 25.1 17.2 15.3 13.4 17.9 19.0 20.8 Alkem 287 2,400 NA NA 16.5% 27.6 23.6 20.3 20.7 17.5 15.3 17.9 18.0 18.1 Cadila 280 273 NA NA 12.4% 19.4 16.9 15.3 12.9 11.6 10.8 12.7 13.4 13.7 Glenmark 90 318 NA NA 16.6% 12.4 10.3 9.1 7.0 6.1 5.5 12.0 12.6 12.8 Ipca Labs 156 1,238 NA NA 19.7% 26.0 21.2 18.2 17.3 14.7 12.7 17.5 18.2 18.0 Eris Lifesciences 71 512 NA NA 16.8% 20.0 17.3 14.7 17.0 15.0 13.0 26.8 25.2 22.5

Source: HDFC sec Inst Research

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Income Statement (Consolidated) Year to March (Rs mn) FY18 FY19 FY20E FY21E FY22E Revenues 263,554 290,659 322,822 357,835 389,178 % growth (16) 10 11 11 9 Material cost 74,247 78,690 89,856 96,616 103,132 Gross margin (%) 72 73 72 73 74 Personnel cost 53,671 59,670 62,745 71,567 75,890 Other Expenses 80,896 89,223 98,312 112,718 120,143 EBITDA 54,741 63,077 71,908 76,934 90,013 EBITDA margin (%) 21 22 22 21 23 Depreciation 14,998 17,533 19,207 20,327 21,447 Finance Cost 5,176 5,553 4,497 4,047 3,597 Other Income 8,388 10,255 8,500 10,450 10,450 Tax 5,908 6,009 10,399 12,602 15,084 Tax rate (%) 14 12 18 20 20 Exceptionals 10,710 12,144 0 0 0 Recurring Net Profit 32,324 38,799 41,958 44,349 54,275

Source: Company, HDFC sec Inst Research

Balance Sheet (Consolidated) Year to March (Rs mn) FY18 FY19 FY20E FY21E FY22E Shareholders Funds 381,006 414,091 453,798 497,608 551,346 Share Capital 2,399 2,399 2,399 2,399 2,399 Reserves & Surplus 378,606 411,691 451,398 495,209 548,946 Minority Interest 38,842 33,135 37,335 43,335 49,335 Non-current Liabilities 24,538 26,316 24,126 22,017 19,997 Long-term Borrowings 17,721 15,226 12,226 9,226 6,226 Deferred Tax Liabilities (Net) 2,190 1,043 1,043 1,043 1,043 Others 4,627 10,047 10,857 11,748 12,729 Current Liabilities 198,643 173,396 178,984 178,740 177,892 Short-term Borrowings 79,797 83,708 77,708 71,708 65,708 Trade Payables 47,662 41,479 53,067 58,822 63,974 Others 71,184 48,210 48,210 48,210 48,210 Total liabilities 643,028 646,938 694,243 741,700 798,570 Non-current Assets 326,669 336,246 338,861 341,138 343,156 Fixed Assets 157,111 172,919 167,712 161,385 153,938 Goodwill on Consolidation 56,067 59,558 59,558 59,558 59,558 Non-current Investments 3,001 2,425 2,668 2,935 3,228 Deferred Tax Assets (Net) 21,938 25,549 25,549 25,549 25,549 Others 88,552 75,795 83,375 91,712 100,883 Current Assets 316,359 310,692 355,382 400,562 455,414 Inventories 68,807 78,860 75,178 83,332 90,630 Trade Receivables 78,153 88,842 88,444 98,037 106,624 Cash and Cash Equivalents 99,294 72,756 118,453 142,506 177,755 Other Current Assets 70,106 70,234 73,307 76,687 80,405 Total Assets 643,028 646,938 694,243 741,700 798,570

Source: Company, HDFC sec Inst Research

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Cash Flow Year to March (Rs mn) FY18 FY19 FY20E FY21E FY22E Net Profit Before Tax 34,790 38,102 56,704 63,011 75,419 Depreciation 14,998 17,533 19,207 20,327 21,447 Interest Income (22) (1,140) 4,497 4,047 3,597 Change in working capital (2,123) (26,960) 13,405 (14,480) (13,471) Taxes Paid (7,417) (8,864) (10,399) (12,602) (15,084) Operating cash flow 39,072 21,965 83,414 60,302 71,908 Capex (19,607) (32,128) (14,000) (14,000) (14,000) Acquisition of Subsidiaries (855) (228) 0 0 0 Others (13,245) 25,544 (7,822) (8,604) (9,465) Investing cash flow (33,708) (6,813) (21,822) (22,604) (23,465) Interest Income (4,765) (4,607) (4,497) (4,047) (3,597) Shares issued, payment to Minority (6,898) (14,540) 4,200 6,000 6,000

Loans Repaid 5,876 (2,372) (9,000) (9,000) (9,000) Dividend paid (9,605) (5,787) (6,598) (6,598) (6,598) Financing cash flow (15,393) (27,305) (15,895) (13,645) (13,195) Net Change in Cash (10,029) (12,153) 45,697 24,053 35,248 Opening cash balance 86,424 99,294 72,756 118,453 142,506 Closing cash balance 79,065 90,852 118,453 142,506 177,755

Source: Company, HDFC sec Inst Research

Key Ratios Year to March FY18 FY19 FY20E FY21E FY22E PROFITABILITY (%) GPM 71.8 72.9 72.2 73.0 73.5 EBITDA Margin 20.8 21.7 22.3 21.5 23.1 APAT Margin 12.3 13.3 13.0 12.4 13.9 RoE 8.5 9.4 9.2 8.9 9.8 RoIC (or Core RoCE) 10.3 10.0 11.0 11.7 13.7 RoCE 9.2 10.0 10.3 10.6 11.5 EFFICIENCY Tax Rate (%) 13.8 12.0 18.3 20.0 20.0 Fixed Asset Turnover (x) 1.7 1.7 1.9 2.2 2.5 Inventory (days) 95 99 85 85 85 Debtors (days) 108 112 100 100 100 Other Current Assets (days) 40 39 38 38 38 Payables (days) 66 52 60 60 60 Other Current Liab & Provns (days) 99 61 55 49 45 Cash Conversion Cycle (days) 138 159 125 125 125 Debt/EBITDA (x) (0.0) 0.4 (0.4) (0.8) (1.2) Net D/E (x) (0.0) 0.1 (0.1) (0.1) (0.2) Interest Coverage (x) 7.7 8.2 11.7 14.0 19.1 PER SHARE DATA (Rs) EPS 13.5 16.2 17.5 18.5 22.6 Dividend 2.0 2.8 2.8 2.8 2.8 Book Value 158.8 172.6 189.1 207.4 229.8 VALUATION P/E (x) 31.6 26.3 24.4 23.0 18.8 P/BV (x) 2.7 2.5 2.3 2.1 1.9 EV/EBITDA (x) 17.2 15.3 12.7 11.6 9.4 EV/Revenues (x) 3.6 3.3 2.8 2.5 2.2 OCF/EV (%) 4.2 2.3 9.1 6.8 8.5 FCF/EV (%) 2.6 (0.5) 8.1 5.7 7.2 FCFE/Mkt Cap (%) 1.8 0.4 6.4 4.0 5.1 Dividend Yield (%) 0.5 0.6 0.6 0.6 0.6

Source: Company, HDFC sec Inst Research

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Rating Definitions BUY : Where the stock is expected to deliver more than 10% returns over the next 12 month period NEUTRAL : Where the stock is expected to deliver (-)10% to 10% returns over the next 12 month period SELL : Where the stock is expected to deliver less than (-)10% returns over the next 12 month period

Date CMP Reco Target 7-Feb-20 431 BUY 500

RECOMMENDATION HISTORY

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HDFC securities Institutional Equities Unit No. 1602, 16th Floor, Tower A, Peninsula Business Park, Senapati Bapat Marg, Lower Parel, Mumbai - 400 013 Board : +91-22-6171-7330 www.hdfcsec.com

SUN PHARMA: COMPANY UPDATE

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