Pharma Giant – Re rated! 43% Upside!

Indian pharma industry has been quite volatile where in we have seen number of players trying to retain respectable market share in the local as well as global market. But there is one such company which is so well placed and has done continuous tough acquisitions to increase its market share globally . This company went through a series of transformation in the way it managed its corporate capital structure in the last 10 years!

Today we are analyzing India’s largest pharma player with over 8.2% market share i.e SUNPHARMA.

Ever since Sunpharma acquired Ranbaxy , the company was facing issues in merger of operations , servicing of debt and capital restructuring of the merged entity. To add to its woes ,SUNPHARMA lost a suit that was filed in USA (inherited in Ranbaxy buyout ) and paid a whooping $485 million , April 2022. So the bad news is out and behind for this stock as of now!

Once a Cash Rich Pharma giant , SUNPHARMA has been one of the most aggressive acquirer of pharma assets across the globe. Some of the prominent one were :

  • Complete stake in Ranbaxy
  • Partial stake in zenotech
  • Partial stake in Galderma’s subsidiaries in advanced markets
  • Partial stake from fiterman pharma ( Romania ) , etc.

The aggressive debt repayment of around rupees 45,000 crores i.e. $5.86 Billion in last three years has freed up company cashflows and this will allow capital allocation to be profitable going ahead , improving both EPS and ROCE.

Suggestions :

We initiate a buy on SUNPHARMA at current levels of 883 with a target of 1200+ in next 12 months

  • SUNPHARMA is currently trading at P/E of 25 which is lower than industry given the breadth of the company products
  • Current ROCE of 18% will be improving to upto 24% to 29% in next 12 months if the debt repayments are completed with same momentum.
  • Technically the stock corrected from 974 levels on 1st July 2022 , which is exactly the breakdown zone from 2015 when company was in news for aggressive acquisitions. The reverse cup and handle pattern is visible and weak hands may be out of this stock.
  • FIIs have returned to this stock and are holding close to 15% in the parent company SUNPHARMA itself and have decent stake in subsidiary companies too.

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