Target Price: Rs 1163
Potential Upside: 10%
Time Frame: 12 months
Key Highlights:
- Sun Pharma is a leading domestic pharma company with a strong presence in chronic segments such as cardiology, neurology and diabetology. The company's turnover has doubled and net profit tripled in the last 4 years.
- Its net margins have been consistently higher than its peers (the top 10 Indian pharma companies) and it boasts one of the highest operating margins in the sector. The company plans to demerge areas related to new molecular entities and drug delivery systems into SPARC and list the company.
- The fair value of the newly formed company works out to US$620 million (around 13% of the current market price). We believe the de-merger and listing of the newly formed subsidiary will unlock value both for the company and its shareholders.
- The stock is currently trading at Rs 1,057, 18.51x FY09E EPS of Rs 57.11 and 23.16x FY08E EPS of Rs 45.63. Given the superior fundamentals in terms of RoNW, ROCE, margins, product mix (95% chronic space) and almost debt free status, we believe that the stock should trade at a premium to its peers.
- I rate the stock as PERFORMER with price target of Rs 1163 in 12 months.
