sum pharmasuticals inds ltd

Ritik Gupta | Pee Aar Securities Ltd. 1

Ritik Gupta | Pee Aar Securities Ltd.

SUM PHARMASUTICALS INDS LTD.

Healthcare | Drugs & Pharma | Research & Development

Sun Pharma has shown great results from April 2020 to March 2021. As per my fundamental analysis the investors who are long in Sun Pharma should HOLD it for long term investment (at least 3 years). Sun Pharma can give you close to 13% CAGR in 3 years and those investors who are thinking of going long on Sun Pharma should wait for the dip. It can show a little correction in some time then it will be the right opportunity to ENTER. Investors who are long can go for COST AVERAGING that time.

RITIK GUPTA: 10th June 2021

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un-Pharmaceuticals, the country's largest pharma company has seen a meteoric rise to the top of the

pharma world in its four-decade history. A successful track record of acquisitions has today made it the

world's fourth largest generic pharma company. In the last five years though, hit by near simultaneous

knocks, Sun lost the market's favor. It still trades 40 per cent lower from its peak last seen in 2015. Sun's

investments in specialty drugs have now started to pay-off (specialty drugs are complex and expensive). The

move requires heavy upfront investments. Returns are uncertain till the end. Sun is estimated to have spent

$2 billion in specialty drugs. Without going anywhere. Until now, earnings from specialty drugs have just

begun. Sun has a lot of scope for multi-year gains. It is now selling more specialty drugs than before the

pandemic. Furthermore, Sun's domestic business is growing faster than its peers. On the chance that

specialty takes time to scale up, the stock has already priced in a number of negatives. From quality issues at

its Halol manufacturing facility, to the increased competition in US generics space. From the infamous

whistleblower complaint (now resolved) to price-fixing issues in the US (now settled). From lower sales of its

Israeli subsidiary to the impact of covid-19. The downside in Sun therefore is limited, especially when its

formidable domestic business provides a cushion to earnings growth. Sun is thus set to go up from current

levels. We recommend you buy Sun Pharma before earnings start gaining momentum.

Why we like Sun Pharma

The only Indian company to make inroads into the difficult specialty market. Sun has a portfolio of nine

specialty drugs - the highest among Indian pharma companies. Market leader. Sun is the market leader in

India with a share of 8.2 per cent. What's more, it is the leader in nine therapies.

Why you should buy Sun Pharma now

Specialty bet paying off. Sun's investments in specialty drugs have started paying off. These will drive earnings

up going forward. Domestic business growing faster than industry. Sun's domestic business is no slouch

either. The market leader has been growing faster than its peers.

What's special about Sun Pharma?

World's 4th largest generic pharma company. Sun has improved its global generic pharma ranking from 5th

largest, five years ago, to one place up. With revenue worth over $ 4.4 billion today, it also ranks 11th in the

US generic market. It has 43 manufacturing sites across the world and is present in more than 100 countries.

Diversified revenue base: Over the years, Sun has diversified its business away from the US and into other markets. Five years ago, US formulations brought in 50 per cent of revenue. Today, it makes up just 33 per cent. India, five years ago, brought in 24 per cent of revenue, but today accounts for 30 per cent.

India's largest domestic pharma company: Sun is the largest domestic pharma company with a market share of 8.2 per cent. What's more, it has held on to its market leadership position even with the tumultuous years of late. The following graphic shows Sun's position today.

S


COMPANY DETAILS

DIRECTORS DETAILS

DIN Director Name Designation Appointment Date

00005561 SUDHIR VRUNDAVANDAS VALIA Director 31 January 1994

00179072 KALYANASUNDARAM IYER NATESAN

SUBRAMANIAN

Wholetime

Director

01 April 2010

00004612 GAUTAM BHAILAL DOSHI Director 25 May 2018

00005443 SAILESH TRAMBAKLAL DESAI Wholetime

Director

20 September 2006

05299764 ISRAEL MAKOV Director 29 May 2012

00291126 VIVEK CHAAND SEHGAL Director 14 November 2017

00005588 DILIP SHANTILAL SHANGHVI Managing

Director

01 April 2008

06809515 REKHA SETHI Director 13 February 2014

CIN L24230GJ1993PLC019050

Company Name SUN PHARMACEUTICAL INDUSTRIES LIMITED

Company Status Active

ROC ROC-Ahmedabad

Registration Number 19050

Company Category Company limited by Shares

Company Sub Category Non-govt company

Class of Company Public

Date of Incorporation 01 March 1993

Age of Company 28 years, 3 month, 2 days


RED FLAGS RELATED TO THE MANAGEMENT AND OTHER KMP’S

Mr. Sudhir Valia stepped down from the position of Whole-time Director of the Company to Non-Executive

Director of the Company, with effect from May 29, 2019. He continues to be a Non-Promoter, Non-Executive

and Non-Independent Director of the Company. He is part of Promoter Group but not a promoter.

The reason given behind the stepped down was the business of Mr. Sudhir Valia personal business is growing

and it is taking most of the time. Mr. Sudhir Valia’s main business is from “Suraksha Asset Reconstruction

Limited” which was related party to “Suraksha Realty” whose was under the impression of taking loans from

“Sun Pharmaceutical Industries Limited”

Sun Pharma did not disclose a $325 million loan to an employee and for a whistle-blower letter sent to the

SEBI which makes several allegations of insider trading and questionable real estate and stock market

transactions involving Valia. Sun Pharma has denied these allegations.

Interestingly, till recently Valia-owned companies Lakshdeep Investments and Finance Private Limited

(LIFPL), Suraksha Realty and Surakhsa Asset Management Company were in news for making a bid for Jaypee

Infratech which owns vast tracks of land bank on both sides of Delhi-Agra Expressway. Jaypee was sent to

the NCLT after it defaulted to bank debt worth Rs 100 billion and Lakshdeep was one of the five bidders.

Sun insiders said Valia, who joined Sun Pharma in 1994 and is a chartered accountant, has been involved with

taxation and finance at the company since the company's initial years. But over the years, he was more

involved in investing in other companies. Insiders said it is Shanghvi and Valia who take all the calls on how

to run Sun Pharma. "Whatever decision Valia takes, it is in concurrence with Shanghvi," said a former

employee.

Many have speculated it was Shanghvi who has pumped his own money through Lakshdeep. But Valia, in

earlier interviews to this denied allegations that Shanghvi invested in his personal investment companies.

Lenders said Suraksha Realty and Lakshdeep raised funds against Sun Pharma and Sun Pharma Advanced

Research Company Limited (SPARC) shares held by LIFPL, its subsidiary and the individual directors. The

borrowings were not to exceed Rs 35 billion.

Analysts said while calculating this limit, entire borrowing, as well as all contingent exposures of LIFPL and

its subsidiaries, was taken into account. The cover (i.e., the ratio of market value of Sun Pharma and SPARC

shares held by Valia Group to total borrowings) was always be at least 1.75 times at all times.


RED FLAGS RELATED TO THE RELATED PARTY

SEBI had received two whistleblower complaints, wherein allegations were made against Sun

Pharmaceutical Industries Ltd (SPIL) and its wholly-owned subsidiary Sun Pharmaceutical Laboratories Ltd

(SPLL), alleging that the firms had been diverting funds through its sole distributor in India, Aditya Medisales

Ltd. Further, it was alleged that transactions with Aditya Medisales Ltd (AML) were ongoing for several years.

However, the firm did not disclose as a related party of SPIL before financial year 2017-18.

Shanghvi, Valia, Desai, and Subramanian, by virtue of their positions, were in charge of the firm's operations

and decision-making process, therefore allegedly violated provisions of Listing Obligation and Disclosure

Requirements (LODR) norms. SEBI noted that they allegedly failed to ensure conformity with the regulatory

provisions applicable to the listed entity.

The panel of whole-time members of SEBI approved the recommendation and the entities remitted their

respective settlement amounts in January 2021, Sebi noted in separate settlement orders. According to

separate settlement orders, Sun Pharmaceutical paid over Rs 56.11 lakh towards settlement charges and

Shanghvi paid Rs 62.35 lakh. Besides, the firm's whole-time directors -Sudhir V Valia and Sailesh T Desai- paid

Rs 37.41 lakh each, and Kalyanasundaram Subramanian had to remit a settlement amount of Rs 36.97 lakh.

In addition, Chief Financial Officer Uday Baldota and compliance officers -Sunil Ajmera and Ashok I Bhuta-

paid their respective settlement amounts which were in the range of Rs 18.48 lakh to Rs 24.65 lakh.

The most important Factor here is AML’s Director, Mr. Bhushan Prakash Mehta was director in Suraksha

Realty Ltd. (where Mr. Sudhir Valia was the director) for just 7 days starting from 24th June 2015 to 30th June

2015 and in Vijay Suraksha Realty Ltd. for 8 months.

For the complete penalty imposed by the SEBI, refer this link given below:

https://www.sebi.gov.in/enforcement/orders/feb-2021/settlement-order-in-respect-of-shri-sudhir-v-

valia-in-the-matter-of-sun-pharmaceutical-industries-limited_49096.html

One another most important fact I would like to mention here, Directors of Sun Pharma Pharmaceuticals

Limited, are somewhere related to Suraksha Realty, Suraksha Asset Reconstruction Limited, or any other

company related to construction and infrastructural development. There are not less than 7-8 small

companies registered under the similar address, similar names by the director of Sun Pharma, Mr. Raksha

Sudhir Valia (Son of Sudhir Valia) and Mr. Sudhir Valia.

https://www.sebi.gov.in/enforcement/orders/feb-2021/settlement-order-in-respect-of-shri-sudhir-v-valia-in-the-matter-of-sun-pharmaceutical-industries-limited_49096.html

https://www.sebi.gov.in/enforcement/orders/feb-2021/settlement-order-in-respect-of-shri-sudhir-v-valia-in-the-matter-of-sun-pharmaceutical-industries-limited_49096.html


GROUND REPORT

I visited some of the retail and wholesale medical stores of East Delhi to find out the actual market share of

the company. I interviewed 5 massive wholesale and retail stores owners and asked about the performance

of Sun Pharma and its other competitors. Given below is the table showing ground data collected about the

market share of the pharma companies.

East Delhi Pharmacy Store Data (Market Share in %)

Store Name Sun Pharma Cipla Dr. Reddy Wockhardt

Prem Medicos 45 30 15 10

Vishal Medicos 40 30 20 10

Vishnu Medicos 50 25 20 5

Anand Medicos 40 35 15 10

Hans Medicos 55 30 10 5

Average 46 30 16 8

After conducting a short interview, I found out the average market share of all the companies. The result

shows, Sun Pharma has the largest market share of 46% followed by Cipla 30%, Dr. Reddy 16%, Wockhardt

8%.

Please note the above conducted ground report is based on only 4 major companies. There are a lot more companies in the market. Thus, the

actual market share may vary with the calculated one. This representation is just for basic understanding of the most immediate competitors of

Sun Pharma.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

PremMedicos

VishalMedicos

VishnuMedicos

AnandMedicos

HansMedicos

Average

45 4050

40

5546

3030

2535

30

30

15 2020 15

1016

10 10 5 10 5 8

Mar

ket

Shar

e

Name of the Medical Store

East Delhi Pharma Store (Market Share)

Sun Pharma Cipla Dr. Reddy wockhardt


HOW BIG IT CAN BECOME

Entry into specialty drugs. With a rush of global competitors, the once-lucrative US generics

business lost its profitability. Indian firms that had minted money in generics began to find the

going tough. The only way to make more money was to go up the value chain into specialty drugs.

In one word, specialty means expensive drugs. These are high-cost medicines used to treat

chronic or complex diseases such as cancer, HIV, epilepsy, arthritis, etc. These medicines are

often biologics or derived from living cells that need to be handled carefully. And they are

expensive, often over $1000 for a month's treatment.

The global specialty generics market is worth $ 57.3 billion (2020). Specialty generics are generic

versions of specialty drugs, once they go off-patent. This industry is expected to be worth $88.9

billion by 2024 (Source: IMARC). It is in this market that many Indian pharma firms have tried

their hands at in the last 6-7 years. Among them. Dr. Reddy's, Lupin, Cipla, Cadila and Aurobindo

Pharma. But none of them have either invested as much or been as successful as Sun Pharma. Of

the $2.5-3.0 billion Indian firms have invested in specialty drugs, Sun alone is estimated to have

spent up to $2 billion.

It also has the largest portfolio of specialty drugs at nine compared to any other Indian firm.

Global specialty drug sales of $429 million in FY20 constituted nine per cent of Sun's revenue in

FY20. Sun is now near the end of its investment phase in specialty drugs. It is now looking at

extending its existing product lines to new dosages to expand the market. Specialty drugs

took a hit of 17 per cent in Q1 of FY21 on account of the pandemic. In later quarters, specialty

drugs have bounced back - up 19 per cent year-on-year in Q2 and up 25 per cent in Q3. Sales of

its key drugs like Illumya, Cequa and Absorica now exceed pre-covid levels. As these and other

specialty drugs begin to grow in scale, Sun's earnings will go up in the years to come.

Domestic

While specialty gains ground, Sun's domestic business, worth over Rs. 10,000 crore per year is its

bedrock. Over the last couple of years, Sun has increasingly focused on India with a bevy of

new launches. As a result of these efforts, India sales now bring in 30 per cent of total revenue,

up from 25 per cent five years ago.

Sun has a portfolio for both acute and chronic illnesses. Acute illnesses are those that develop

suddenly and often last a few days or weeks like burns, broken bones, cold or asthma attacks.

Chronic diseases develop slowly and often worsen with time. These include diabetes, heart

diseases, high blood pressure and high cholesterol.

Focus on India and expansion of its field force over the past couple of years has resulted in higher

than industry growth. Domestic business was up nine per cent (y-o-y) in Q3, higher than peers

who reported 5-7 per cent base growth (excluding covid sales). Sun launched 23 products in

India in Q3 of FY21. It has targeted further 20-25 launches including line extensions going

forward to drive sales up.


Management

Dilip Shanghvi, managing director, founded Sun in 1983. He and his associates hold 54.48 per

cent in the company. Shanghvi has followed a successful strategy of acquisitions from Sun's early

days. It made several acquisitions and licensing deals, the most famous of which were Ranbaxy

and Israel-based Taro Pharmaceuticals. Sun's more recent acquisitions have allowed it to gain

a foothold into the difficult to enter Japanese market.

Efficiency

Sun's operating margin averaged at 24 per cent in the last three years. Margins have scaled

higher at 26 per cent as the specialty drugs improved performance in the last 12 months.

Specialty drugs by nature need large investments in the initial phase. Any returns are back-

ended only after the investments in R&D, manpower and sales and marketing. Sun's return on

equity as a result has languished at eight per cent levels in the last five years. As it nears the

end of its investment phase and specialty drugs begin to scale up, returns will trend higher.

Risks

Slow scale-up of specialty drugs: For sustained earnings growth, specialty drugs need to scale

up. Some like the Illumya have not done so fast enough while others like Absorica face stiff

competition. The company is countering these by launching new indications (new uses of the

medication).

US generic sales to remain under pressure: Besides specialty drugs, Sun continues to sell

generic drugs (accounting for six per cent of its 9MFY21 revenue). Stiff competition in this

segment, especially in dermatology, is likely to keep this segment under pressure.

Taro Pharmaceutical: Taro is Sun's Israel-based subsidiary that specialises in dermatology and

sells predominantly in the US. For some time in the past, Taro reported strong growth but it

came under pricing pressure as more competitors came in. As a result, Taro's contribution to

Sun's US revenue has declined from 42 per cent in FY16 to 33 per cent in FY20. With a narrowing

product pipeline, Taro's share could continue to shrink going forward as specialty scales up.

Near-term covid impact: The severity of the pandemic, both in India and the globe could impact

Sun going forward. Last year, as hospitals focused on covid care, many patients deferred non-

emergency treatments. A similar pattern could play out in the near term.

Valuation and outlook

Looking at Sun on a simple price-to-earnings ratio does not give a true picture of the change

playing out. After an investment-heavy phase that saw little returns, specialty business has just

started paying off. As they gain scale, earnings will follow. At the same time, investments and

launches in India will drive domestic growth. Sun is investing for multi-year growth. Investors in

Sun will also need to have the same frame of mind. Buy with a long-term horizon.


Maximum number of shareholdings is with the promoters of the company (54.69%) then followed by UTI and

Mutual Fund Companies (10.94%), Banks, FII’s (8.54%), Corporate FPI (12.81%), then approximately (7.70%)

by Indian public.

54.69%

32.37%

12.94%

0.00%

0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00%

Promoter

Institution

Non-Institution

Custodian (ADR & GDR)

SHAREHOLDING PATTERN


Key Highlights:

1. LIC has increased its stake in Sun Pharma by 0.48% which resulted in total holdings of 6.37%.

2. India’s leading Mutual Fund houses, ICICI Prudential Value Discovery Fund, HDFC Balanced Advantage

Fund, Aditya Birla Sun Life Equity Fund and Nippon India Arbitrage Fund (Former name Reliance

Mutual Fund) are heavy on Sun Pharma by 0.04%, 0.76%, 0.67%, 0.01% respectively.

3. UTI hike stake in Sun Pharma holdings by 0.06% resulting to 0.91%.

4. Government of India Pension Fund has increased its stake by 0.46%.

5. Government of Singapore is the only major shareholder from the list of top 10 who has reduced its

stake by 057% in Sun Pharma.

PENALTIES AND INDEBTNESS


Details of issuance date, due dates and actual dates and amounts of repayment of listed unsecured commercial paper:

ISIN No Issuance Date Due Date of Payment Actual Date of

Repayment

Redemption Amount

(In Million)

INE044A14542 11-Feb-20 11-May-20 11-May-20 5,000.0

INE044A14567 18-Mar-20 17-Jun-20 17-Jun-20 5,000.0

INE044A14575 10-Jun-20 09-Sep-20 09-Sep-20 3,000.0

INE044A14583 26-Aug-20 15-Jun-21 N/A 4,000.0

INE044A14591 03-Sep-20 01-Dec-20 01-Dec-20 5,000.0

INE044A14609 01-Dec-20 29-Dec-20 29-Dec-20 2,500.0

INE044A14617 29-Jan-21 28-Jan-22 N/A 7,300.0

INE044A14625 02-Feb-21 26-Feb-21 26-Feb-21 5,000.0

INE044A14633 02-Feb-21 19-Mar-21 19-Mar-21 4,000.0

INE044A14641 26-Feb-21 28-May-21 N/A 3,000.0

PENALTIES

Total of Rs 14073.80 (millions) is pending against the Income tax dues, Sales tax dues, Excise duty, interest

charged on them and penalty imposed on them. Major amount is from 2006-07 to 2011-12 from Income tax.

The matter is pending in ITAT.

FINANCIALS


Key Highlights:

1. From the above given data we can clearly see that Gross margin has fallen by 2% i.e., from 73% of sales to 71% of the sales. It is mainly due to the increase in the cost of direct cost. Sun's overall material cost is up by 2% as compared to the previous year. Therefore, increase in cost of its materials has directly shown impact on gross margin.

2. EBITDA has fallen by 1% from the previous year but overall fall in EBITDA is much more than 1% if we compare it from the past 5-year data. Company is able to generate 10% less EBITDA now as compared to 2015, 2016.

3. Fall in EBITDA is clear indication of fall in net margin and obviously EPS.

4. Net margin and ROE is all time low. It is constant from past 3 years i.e., 13% and 9% respectively.

5. Although company's Sales CAGR is 25% and NP CAGR is 17% but it is only the increase on amount not the growth factor. Market price does not justify the increase because of the static growth.

6. CAGR of Operating cash flow of the company is 21% but there is an outlier (FY 2018-19) where operating cash flows are very less. Almost 75% low as compared to the previous year.

7. CAGR of Free Cash Flow of the company is 23% but there is an outlier (FY 2018-19) where free cash flows are in negative which means extensive Capital Expenditure (CAPEX) is done by the company in FY 2018-2019. Its clear outcome can be seen in year 2020 where Free Cash Flow are skyrocketing.

8. CAGR of EPS is 17% but rolling return on the EPS from past 11 years is close to 3% which is very low. Money invested in the FD would have given the higher rolling return.

9. ROE, ROA, ROCE of the company is all time low. Company is not able to employ its capital effectively. It is able to generate 8% of the sales even after the accusation of Ranbaxy and Taro.


12.10

15.70

11.108.70

29.00

18.9018.90

15.20

28.80

25.70

17.50

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2010 2012 2014 2016 2018 2020 2022

PR

ICE

YEARS

EPS TREND


INCOME STATEMENT (31.03.2021)

Sun Pharmaceutical Industries Limited

Registered Office: Sun Pharma Advanced Research Centre, Tandalja, Vadodara - 390012.

Corporate Office: Sun House, CTS No. 201 B/1, Western Express Highway, Goregaon (E),

Mumbai - 400063 Tel.: +91 22 4324 4324.

CIN: L24230GJ1993PLC019050, Website: www.sunpharma.com

Statement of Audited Consolidated Financial Results

for the Year ended March 31,2021 (in Millions)

Particulars

Year ended

31.03.2021 31.03.2020

Audited Audited

I Revenue from operations

a. Revenue from contracts with customers 3,31,391.8 3,23,251.7

b. Other operating revenues 3,589.6 5,123.3

Total revenue from operations (I) 3,34,981.4 3,28,375.0

II Other income 8,355.2 6,359.8

III Total income (I+II) 3,43,336.6 3,34,734.8

IV Expenses

Cost of materials consumed 61,531.3 55,152.3

Purchases of stock-in-trade 31,751.7 34,143.7

Changes in inventories of finished goods, stock-in-

trade

and WIP

(6,382.2) 3,008.5

Employee benefits expense 68,622.3 63,623.5

Finance costs 1,414.3 3,027.3

Depreciation and amortisation expense 20,799.5 20,527.8

Other expenses 94,781.1 1,02,705.5

Net (gain) / loss on foreign currency transactions (236.5) (156.1)

Total expenses (IV) 2,72,281.5 2,82,032.5

V Profit / (loss) before exceptional items and tax (III-IV) 71,055.1 52,702.3

VI Exceptional items (Refer Note 4) 43,061.4 2,606.4

VII Profit / (loss) before tax (V-VI) 27,993.7 50,095.9

VIII (i) Tax expense/(credit) for period / year 9,242.0 8,228.0


(ii) Tax expense/(credit) - Exceptional (Refer Note 4

and 8) (4,095.1) -

IX Profit / (loss) for the period before share of profit / (loss)

of associates and joint venture (VII-VIII) 22,846.8 41,867.9

X Share of profit / (loss) of associates and joint venture (net) (123.3) (148.3)

XI Net Profit / (loss) after taxes and share of profit / (loss) of

associates and joint venture but before non-controlling

interests (IX+X)

22,723.5 41,719.6

Non-controlling interests (6,314.7) 4,070.3

XII Net Profit / (loss) after taxes, share of profit / (loss) of

associates and joint venture and non-controlling interests 29,038.2 37,649.3

XIII Other comprehensive income (OCI)

A. (i) Items that will not be reclassified to profit or loss 3,233.9 (1,314.1)

(ii) Income tax relating to items that will not be

reclassified to profit or loss (145.4) 159.4

B. (i) Items that may be reclassified to profit or loss (4,031.6) 21,941.9

(ii) Income tax relating to items that may be

reclassified to profit or loss (517.2) 421.1

Total other comprehensive income (A+B) (XIII) (1,460.3) 21,208.3

XIV Total comprehensive income for the period (XI+XIII) 21,263.2 62,927.9

Attributable to:

- Owners of the Company 28,133.4 56,068.4

- Non-controlling interests (6,870.2) 6,859.5

XV Paid-up equity share capital - face value ' 1 each 2,399.3 2,399.3

XVI Other equity 4,62,228.5 4,50,245.2

XVII Earnings per equity share of ' 1 each (not annualised for

quarters)

' (Basic) 12.1 15.7

' (Diluted) 12.1 15.7

See accompanying notes to the audited consolidated financial

results

Research and development expenses incurred (included

above) 21,028.2 19,251.7


BALANCE SHEET (31.03.2021)




Mumbai - 400063 Tel.: +91 22 4324 4324.


Statement of Audited Consolidated Financial Results for the Year ended March 31,2021

(in Millions)

Particulars

As at

31.03.2021

As at

31.03.2020

Audited Audited

ASSETS

(1) Non-current assets

(a) Property, plant and equipment 1,02,349.9 1,05,674.3

(b) Capital work-in-progress 9,365.2 6,589.1

(c) Goodwill (Net) 62,876.4 64,814.6

(d) Other intangible assets 50,303.5 57,980.2

(e) Intangible assets under development 6,303.1 5,614.3

(f) Investments in associates 2,327.3 2,153.9

(g) Investments in joint venture 278.3 275.7

(h) Financial assets

(I) Investments 62,218.3 50,027.9

(II) Loans 7.1 7.9

(III) Other financial assets 957.8 1,048.8

(i) Deferred tax assets (Net) 35,564.4 31,752.9

(j) Income tax assets (Net) 34,327.8 33,842.5

(k) Other non-current assets 5,367.4 6,200.9

Total non-current assets 3,72,246.5 3,65,983.0

(2) Current assets

(a) Inventories 89,970.2 78,749.9

(b) Financial assets

(i) Investments 31,300.6 48,973.6

(ii) Trade receivables 90,614.0 94,212.4

(iii) Cash and cash equivalents 62,730.3 56,766.1

(iv) Bank balances other than (iii) above 1,724.8 8,109.4

(v) Loans 560.1 1,483.8

(vi) Other financial assets 8,759.3 9,293.4


(c) Other current assets 18,761.5 18,953.0

Total current assets 3,04,420.8 3,16,541.6

TOTAL ASSETS 6,76,667.3 6,82,524.6

EQUITY AND LIABILITIES

Equity

(a) Equity share capital 2,399.3 2,399.3

(b) Other equity 4,62,228.5 4,50,245.2

Equity attributable to owners of the Company 4,64,627.8 4,52,644.5

Non-controlling interests 30,170.5 38,602.4

Total equity 4,94,798.3 4,91,246.9

Liabilities

(1) Non-current liabilities

(a) Financial liabilities

(i) Borrowings 8,981.3 20,289.2

(ii) Other financial liabilities 195.8 424.1

(b) Provisions 3,271.2 5,110.0

(c) Deferred tax liabilities (Net) 445.1 581.4

(d) Other non-current liabilities 7,519.3 7,808.7

Total non- current liabilities 20,412.7 34,213.4

(2) Current liabilities

(a) Financial liabilities

(i) Borrowings 24,449.0 55,493.8

(ii) Trade payables 39,736.6 35,836.4

(iii) Other financial liabilities 42,373.5 18,887.3

(b) Other current liabilities 7,279.9 6,462.9

(c) Provisions 45,826.5 38,363.6

(d) Current tax liabilities (Net) 1,790.8 2,020.3

Total current liabilities 1,61,456.3 1,57,064.3

Total liabilities 1,81,869.0 1,91,277.7

TOTAL EQUITY AND LIABILITIES 6,76,667.3 6,82,524.6


CASH FLOW STATEMENT (31.03.2021)




Mumbai - 400063 Tel.: +91 22 4324 4324.


Statement of Audited Consolidated Financial Results for the Year ended March 31,2021

(in Millions)

Particulars As At 31.03.2021

As At

31.03.2020

Audited Audited

A. Cash flow from operating activities

Profit before tax 27,993.7 50,095.9

Adjustments for:

Depreciation and amortisation expense 20,799.5 20,527.8

Net (Gain) / Loss on sale / write off /

impairment of property, PPE and other intangible

assets

16.7 53.7

Finance costs 1,414.3 3,027.3

Interest income (2,111.3) (3,546.2)

Dividend income on investments (2,560.4) (561.8)

Net gain arising on financial assets measured

at fair value through profit or

Loss (2,197.6) (571.9)

Net gain on sale of financial assets measured

at fair value through profit or

Loss (138.2) (246.7)

Net (gain)/ loss on sale of financial assets

measured at fair value through

OCI (260.0) (0.4)

Provision / write off /(reversal) for doubtful

trade receivables / advances

43.1 1,068.1

Sundry balances written back, net (122.8) (52.2)

Effect of exchange rate changes 3,215.2 227.7

Operating profit before working capital

changes

46,092.2 70,021.3

Movements in working capital:


(Increase) / Decrease in inventories (10,802.9) 2,567.7

(Increase) / Decrease in trade receivables 937.3 (3,740.5)

(Increase) / Decrease in other assets 1,166.2 (1,751.9)

Increase / (Decrease) in trade payables 3,814.6 (2,101.1)

Increase / (Decrease) in other liabilities 24,983.5 3,124.2

Increase / (Decrease) in provisions 5,542.2 10,887.1

Cash generated from operations 71,733.1 79,006.8

Income tax paid (net of refund) (10,029.4) (13,459.1)

Net cash generated from operating activities

(A) 61,703.7 65,547.7

B. Cash flow from investing activities

Payments for purchase of property, plant and

equipment (including capital

(11,701.3) (15,420.0)

Work-in-progress, other intangible assets and

intangible assets under Development

Proceeds from disposal of property, plant and

equipment and other Intangible assets

971.0 920.3

Loans / inter corporate deposits given / placed - (191.3)

Loans / inter corporate deposits received back

/ matured 882.2 1,875.4

Purchase of investments (includes investment

in associate) (1,85,417.4) (3,34,453.9)

Proceeds from sale of investments 1,97,088.0 3,18,936.3

Bank balances not considered as cash and cash

equivalents:

Fixed deposits / margin money placed (2,818.7) (9,694.5)

Fixed deposits / margin money matured 4,880.8 8,192.9

Net cash outflow on acquisition of subsidiary (616.0) -

Interest received 717.7 3,384.6

Dividend received 1,375.9 561.8

Net cash from / (used in) investing activities

(B) 5,362.2 (25,888.4)

C. Cash flow from financing activities

Proceeds from borrowings 66,028.7 1,05,515.7

Repayment of borrowings (Lease obligation) (1,09,198.7) (1,38,934.6)


Payment for buy-back of equity shares of

parent and buy-back of equity (1,854.2) (2,124.8)

Shares held by non-controlling interests of

subsidiaries

- -

Net increase / (decrease) in working capital

demand loans (1,726.4) 2,189.0

Refund from / (Transfer to) escrow account for

buy-back 4,250.0 (4,250.0)

Finance costs (1,442.5) (2,718.9)

Dividend payment to non-controlling interests (267.0) (201.4)

Dividend paid (15,594.7) (13,791.9)

Dividend distribution tax - (2,834.5)

Net cash used in financing activities (C) (59,804.8) (57,151.4)

Net (decrease) / increase in cash and cash

equivalents (A+B+C) 7,261.1 (17,492.1)

Cash and cash equivalents at the beginning of

the year 56,766.1 70,623.0

Effect of exchange differences on restatement

of foreign currency cash

and cash equivalents

(1,296.9) 3,635.2

Cash and cash equivalents at the end of the

year 62,730.3 56,766.1


TRAILING 12 MONTHS DATA

Sun Pharma’s Operating Profit are not good if we look at the 5 years TTM returns. The company is able to

generate only 1.13% of the operating profit from the past 5 years. This is also been reflected in the Income

statement of the company (EPS and NP). But from past 1 year Sun Pharma has drastically improved its TTM

return on Operating Profit. Company’s debt is under control. Its TTM debt equity is just 0.2 which is very low

as compared to its competitors also. They have more debt obligations.

Ratios and their reason for change shown by the company


RATIO ANALYSIS

Financials TTM 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

Adjusted EPS (Rs) 12.1 15.69 11.11 8.73 29.03 18.89 21.92 15.17 14.83 12.83 8.78

Cash EPS (Rs) 12.1 26.01 20.68 16.95 37.93 27.82 32.27 20.7 18.4 16.1 10.21

Adjusted Book Value (Rs)

193.65 188.66 172.59 159.69 152.7 137.03 123.49 89.44 72.37 59.08 45.79

Dividend per Share (Rs)

0.59 4 2.75 2 3.5 1 3 1.5 5 4.25 3.5

Cash Flow per Share (Rs)

-- 27.32 9.15 16.28 29.52 27.78 27.11 19.12 32.41 21.58 22.05

Free Cash Flow per Share (Rs)

-- 23.32 -3.94 7.9 20.84 14.7 21.79 17.33 27.89 15.61 21.06

KEY HIGHLIGHTS:

• After 3 years company has start showing revival in terms of EPS. In 2021 EPS of the company was Rs 12.1 same as it’s previous TTM. It shows company has maintained its EPS in the stringent times of COVID.

• BVPS of the company is increasing constantly from year 2011. It is good for calculating intrinsic value for determining the stock actual valuation. But the rate it is increasing is constantly decreasing from double digit growth to single digit. There could be three possible reasons for it that is the stock splits, bonus given and accusations made by the company in the recent years.

• Free cash flow in year in 2019 is in negative because of the CAPEX. Now in 2021 we can see the impact of that CAPEX. Sun is able to generate all time high free cash flows.

Profitability Ratio TTM 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

ROCE (%) - 10.07 8.68 8.4 - 18.64 25.06 25.46 31.39 30.13 23.6

ROE (%) 4.99 9.66 8.05 6.85 - 19.32 24.89 23.15 25.53 28.02 22.07

ROA (%) 3.36 6.58 5.17 4.24 - 11.39 14.6 16.21 19.61 22 18.43

Operating Margin (%) 27.84 23.22 25.23 24.41 34.22 31.37 30.72 46.96 46.76 45.84 40.47

Net Margin (%) 6.63 12.5 10.65 9.4 24.23 19.66 19.58 23.27 29.65 35.75 31.31

Cash Profit Margin (%) - 10.5 8.81 7.94 28.82 23.5 24.16 26.35 33.24 41.03 36.39

KEY HIGHLIGHTS:

• TTM ROE of the company is in very low because company’s in not able to generate sufficient net profits in the recent years.

• Although we can see the TTM Operating Margin at 27.84% and 2020 Operating Margin at 23.22% which is a good sign. Sun pharma has successfully maintained its Operating margin ratio above 25%.


• Net Margin of the company is very stringent from past 12 months but if we look at the annual data it is acceptable.

• Company is not able to utilize its assets optimally. It is only generating returns less than 5% from past 5 years.

Solvency Ratio TTM 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

Debt to Equity 0.02 0.18 0.25 0.27 0.27 0.26 0.35 0.14 0.02 0.03 0.04

Current Ratio 1.89 2.02 1.79 1.59 1.84 2.28 1.79 3.12 4.05 3.93 4.39

Quick Ratio 1.33 1.51 1.34 1.25 1.46 1.79 1.44 2.6 3.14 3.14 3.53

Interest Coverage 20.79 17.55 7.86 7.72 23.63 13.56 12.06 104.67 101.13 120.02 28.6

KEY HIGHLIGHTS:

• Sun’s Debt Equity is all time low from past 12 months. It is lowest amongst its competitors. There is very less debt obligation in the company as compared to the equity.

• Current ratio of the company is on the higher side but still a little improvement can be seen from 2020 and past 12 months data. It shows either the current liabilities have gone down or the current assets have been increased. Both the situation of the company is favorable from the investor’s point of view.

• Quick ratio eliminating the effect of funds blocked in the inventories is also on the favorable side.

• After attaining the all-time low Debt Equity ratio, it was obvious that debt obligation of the company would have definitely gone down. Interest coverage ratio is on the best side from 6 years. Interest obligations can be covered 20.79 times.

Efficiency Ratio TTM 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

Debtors to sales (%) 27.05 28.69 30.57 29.59 23.01 24.11 18.64 13.68 21.35 25.92 19.29

Asset Turnover 0.49 0.93 0.91 0.85 0.54 0.57 0.74 0.68 0.65 0.59 0.56

Receivable days - 56.22 54.1 53.53 83.25 76.12 48.2 51.72 71.46 71.49 71.57

Inventory Days - 48.4 47.84 48.88 78.98 77.46 57.99 63.92 74.22 80.31 80.48

Payable days - 63.32 77.81 90.19 85.47 75.24 52.05 56.33 65.15 64.51 51.06

Cash Conversion Cycle - 41.3 24.13 12.23 76.75 78.34 54.14 59.31 80.53 87.29 100.98

KEY HIGHLIGHTS:

• Overall efficiency of generating cash from the sales has drastically gone up by approximately 70%. Now the money will be received after adding 70% delay i.e., 42 days form the usual conversion time.

• There is no change in inventory holding period which procuring inventories are smooth.

• These is a fall in conversion of debtors into sales and rise in average collection period.

• 20% faster payments have been realized by the company as compared to the previous payable period.


Valuation TTM 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011

Price / Earnings 55.71 22.44 43.14 56.72 23.69 43.38 46.64 37.8 14.17 11.1 12.57

Price / Book Value 3.48 1.87 2.78 3.1 4.5 5.98 8.28 6.41 5.65 4.82 4.82

Dividend Yield (%) 0.59 1.14 0.57 0.4 0.51 0.12 0.29 0.26 0.61 0.75 0.79

EV/EBITDA 17.01 11.32 16.12 18.51 14.91 21.84 24.92 15.06 15.32 15.22 18.97

KEY HIGHLIGHTS:

• TTM P/E of the company is all time high. It is even Higher from the industry average i.e., 45. I have done intrinsic value analysis and as per my understanding and best judgement I could say that stock price of the Sun Pharma is a little overvalued but it is also justified by its strong financials.

• TTM P/B ratio is more than 1, even more than 2 which clearly shows stock is overvalued as compared to its intrinsic value. CMP is 3.48 times of its Book Value per Share (BVPS).

• Dividend yield of the company is 1.14% in 2020, which was all time high in 10 years.

Ratios and Formulae (Declared by the Company) As at

31.03.2021 As at

31.03.2020

(i) Debt equity ratio = (Long-term borrowings + Short-term borrowings + Current maturities of long-term borrowings and lease liabilities) / (Total equity)

0.27 0.26

(ii) Debt service coverage ratio = Profit after tax but before finance costs, depreciation and exceptional item / (Finance costs + Short-term borrowings + Current maturities of long-term borrowings and lease liabilities)

1.45 0.75

(iii) Interest service coverage ratio = Profit before finance costs, exceptional item and tax / Finance costs

9.73 8.97

(iv) Asset cover = (Total assets - Intangible assets - Current liabilities excluding Short-term borrowings and Current maturities of long-term borrowings and lease liabilities) / (Long-term borrowings + Short-term borrowings + Current maturities of long-term borrowings and lease liabilities)

4.76 4.97


Fund houses invested in the stock Fund Mar-21 Dec-20 Sep-20 Jun-20 Mar-20

ICICI Prudential Mutual Fund 3.338 3.142 3.202 3.208 3.484

SBI Mutual Fund 2.000 1.974 1.898 1.658 1.151

Nippon India Mutual Fund 1.489 1.414 1.382 1.493 1.297

HDFC Mutual Fund 1.387 1.148 0.780 0.608 1.021

UTI Mutual Fund 0.673 0.816 0.947 0.895 0.911

Aditya Birla Sun Life Mutual Fund 0.612 0.661 0.587 0.763 0.893

Mirae Asset Mutual Fund 0.542 0.335 0.344 0.435 0.430

Kotak Mahindra Mutual Fund 0.299 0.336 0.248 0.113 0.440

L&T Mutual Fund 0.282 0.280 0.349 0.417 0.278

IDFC Mutual Fund 0.210 0.259 0.206 0.242 0.320

DSP Mutual Fund 0.202 0.175 0.107 0.086 0.074

Invesco Mutual Fund 0.183 0.159 0.190 0.208 0.192

Tata Mutual Fund 0.163 0.127 0.073 0.066 0.042

Canara Robeco Mutual Fund 0.139 0.105 0.131 0.040 -

Franklin Templeton Mutual Fund 0.128 0.128 0.128 0.103 0.170

Edelweiss Mutual Fund 0.089 0.122 0.034 0.038 0.093

Sundaram Mutual Fund 0.069 0.072 0.094 0.094 0.031

PPFAS Mutual Fund 0.058 0.050 0.050 0.041 0.014

Baroda Mutual Fund 0.047 0.034 0.012 0.005 0.011

HSBC Mutual Fund 0.036 0.036 0.054 0.041 0.013 Figures given above are % of equity capital

0

0.5

1

1.5

2

2.5

3

3.5

ICICIPrudential

MutualFund

SBI MutualFund

NipponIndia

MutualFund

HDFCMutual

Fund

UTI MutualFund

Aditya BirlaSun LifeMutual

Fund

Mirae AssetMutual

Fund

% H

old

ing

in S

un

Ph

arm

a

Mutual Fund Companies

TOP MUTUAL FUND HOUSES HOLDING (in %)

Mar-21 Dec-20 Sep-20 Jun-20 Mar-20


PEER COMPARISON

Name P/E P/B D/E Profit

Growth % Divid

Yield % ROCE % OPM % ROE %

PAT 12M

(Rs.Cr.)

EPS 12M (Rs.)

Mkt Cap (Rs.Cr.)

Sun Pharma Industries

55.69 3.48 0.07 -26.02 0.82 14.02 25.35 6.33 2903.82 12.1 161703.18

Dr Reddy's Labs

44.79 4.95 0.17 -3.88 0.48 15.48 20.32 11.71 1951.6 117.35 87414.04

Cipla 31.74 4.16 0.08 55.5 0.32 17.83 22.19 14.11 2404.87 29.82 76326.53

Cadila Health

28.42 5.02 0.28 60.24 0.55 15.14 22.12 19.63 2293.07 20.84 65161.22

Aurobindo Pharma

10.53 2.56 0.24 88.45 0.42 18.49 21.3 27.54 5334.85 91.05 56194.44

Torrent Pharma

38 8.15 0.62 24.96 1.24 18.7 31.04 23.49 1252 73.99 47577.05

Biocon 63.15 6.06 0.48 4.77 0 10.74 22.14 10.21 731.74 6.17 46211.09

Given below are the charts showing Peer Comparison more efficiently and effectively. Kindly refer these charts for better understanding of the performance and financial position of the Sun Pharma as compared to the other industry leading companies.

0 10 20 30 40 50 60 70

Sun Pharma.Inds.

Dr Reddy's Labs

Cipla

Cadila Health.

Aurobindo Pharma

Torrent Pharma.

Biocon

55.69

44.79

31.74

28.42

10.53

38

63.15

P/E COMPARISON


0 1 2 3 4 5 6 7 8 9

Sun Pharma.Inds.

Dr Reddy's Labs

Cipla

Cadila Health.

Aurobindo Pharma

Torrent Pharma.

Biocon

3.48

4.95

4.16

5.02

2.56

8.15

6.06

P/B COMPARISON

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7

Sun Pharma.Inds.

Dr Reddy's Labs

Cipla

Cadila Health.

Aurobindo Pharma

Torrent Pharma.

Biocon

0.07

0.17

0.08

0.28

0.24

0.62

0.48

D/E COMPARISON


-26.02

-3.88

55.560.24

88.45

24.96

4.77

-40

-20

0

20

40

60

80

100

PROFIT GROWTH % COMPARISON

Sun Pharma.Inds.

Dr Reddy's Labs

Cipla

Cadila Health.

Aurobindo Pharma

Torrent Pharma.

Biocon

0.82

0.48

0.32

0.55

0.42

1.24

0

0.2

0.4

0.6

0.8

1

1.2

1.4

DIVIDEND YIELD % COMPARISON

Sun Pharma.Inds.

Dr Reddy's Labs

Cipla

Cadila Health.

Aurobindo Pharma

Torrent Pharma.

Biocon


14.02

15.48

17.83

15.14

18.49 18.7

10.74

0

2

4

6

8

10

12

14

16

18

20

ROCE % COMPARISON

Sun Pharma.Inds.

Dr Reddy's Labs

Cipla

Cadila Health.

Aurobindo Pharma

Torrent Pharma.

Biocon

25.35

20.3222.19 22.12

21.3

31.04

22.14

0

5

10

15

20

25

30

35

OPERATING PROFIT MARGIN % COMPARISON

Sun Pharma.Inds.

Dr Reddy's Labs

Cipla

Cadila Health.

Aurobindo Pharma

Torrent Pharma.

Biocon


6.33

11.71

14.11

19.63

27.54

23.49

10.21

0

5

10

15

20

25

30

ROE % COMPARISON

Sun Pharma.Inds.

Dr Reddy's Labs

Cipla

Cadila Health.

Aurobindo Pharma

Torrent Pharma.

Biocon

Sun Pharma.Inds.17%

Dr Reddy's Labs12%

Cipla14%

Cadila Health.14%

Aurobindo Pharma32%

Torrent Pharma.7%

Biocon4%

PAT 12M (Rs.Cr.)


Sun Pharma.Inds.3%

Dr Reddy's Labs33%

Cipla9%Cadila Health.

6%

Aurobindo Pharma26%

Torrent Pharma.21%

Biocon2%

EPS 12M (Rs.)

Sun Pharma.Inds.30%

Dr Reddy's Labs16%

Cipla14%

Cadila Health.12%

Aurobindo Pharma10%

Torrent Pharma.9%

Biocon9%

Mkt Cap (Rs.Cr.)


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