This is NOT a Multibagger post but Evaluation purpose only!
Sun Pharma Multibagger analysis in this post targets to understand the impact of COVID-19 & growth potential it brings for the healthcare industry in general & Sun Pharmaceuticals in particular.
The below Sun Pharma multibagger analysis is based on legendary Warren Buffet’s strategy of choosing assets.
About Sun Pharma
Established in the year 1993, Sun Pharma is a Large Cap company with a market capitalisation of Rs.117987.30 Crore operating in Pharmaceuticals sector.
Sun Pharmaceuticals major Revenue streams include Pharmaceuticals contributing Rs.11906.74 Crore to Sales Value which is about 95% of Total Sales.
Plus, Other Operating Revenue which contributed Rs.625.19 Crore to Sales Value which accounts for around 4% of Total Sales for the financial year ending 31-Mar-2020.
Its contribution towards the fight against Covid-19 has been head on by developing new medicines.
The second phase of clinical trials for AQCH, a plant-derived drug, began during June this year as well as in August, Sun Pharma launched FluGuard (Favipiravir 200 mg) which was helpful in the treatment of mild to moderate cases of Covid-19.
The company’s targeted R&D expenditure is estimated to be Rs.2,000 crore in 2019-20 & has also initiated a global licensing agreement in August last year with the CSIR-Indian Institute of Chemical Technology for patents related to medical developments in their focus areas.
Following are the Checklist parameters for Sun Pharma Multibagger:
| Capitalization | Rs.117987 CR |  |
| History of Consistently Increasing Sales, Earnings & Cash Flow | Yes |  |
| Durable Competitive Advantage | High | |
| Future Growth Drivers / Sector Growth | High | |
| Conservative Debt (long term debt < 3 Net Profit) | Low Debts | |
| Debt Equity Ratio, Current Ratio | Low Debt, Current Ratio is 2.84 | |
| Return on Equity must be Above Average | 10% |  |
| Low CAPEX required to maintain current operations | Moderate |  |
| Inventory Turnover Ratio, Debtor Days, ROCE | Debtor days increasing, ROCE : 10.5% |  |
| Management is holding / buying the stock | Promoter holding is at 54% & Consistent | |
| Market Price < Intrinsic Value | At 15% Discount Intrinsic Value Calculator | |
| Stock Price is consolidating (now) | Yes | |
| Stock Price is growing in past years along with EPS growth | Consolidating |  |
| Consolidated PE, PB Ratio, PEG Ratio | Moderate | |
| Cash Flow Positive, Net Profit % greater than 8% | Cash Flow: Negative Profit: -13% |  |
| Paying Dividends, Tax | Dividends: 25% Tax: Low % | |
| EPS Growth Rate | Average 30% above past 3 years | |
| Jump in Trailing Result EPS | Yes | |
| Jump in Quarterly Result EPS | No | |
| Expected Gain in 5 Years | 2X |  |
| Price Movement Graph, 52 Week High & Low | Declining | |
| Volume Analysis | Too High | |
| Power of Brand | High | |
| Corporate Governance, Reputation of Leaders | Well Known | |
| Fraud reported | No | |
Factors making Sun Pharma Multibagger
- U.S. market conditions are highly stable with no imminent signs of further consolidation of buying groups or any fresh entrants in the industry.
- Company is focussing on profitability and ROCE improvement which can be observed in focused filings and new launches.
- Sun Pharma over 2014-2018 entered a significant investment phase in relatively competitive products such as specialty products and complex generics which significantly increased R&D spending & effected operating margins. This futuristic vision turned out to be highly profitable over the past 12-18 months when R&D-backed products have started garnering profits.
- With Sun Pharma launching all its specialty products in the U.S. and their efficient monetisation, U.S. margins are expected to grow over the next three years significantly turning Sun Pharma multibagger.
- Even though DIIs have been highly optimistic since 2016, FIIs have stayed away from the Indian health sector. With such positive developments, an improved outlook is expected & attract FIIs.
- Announcement of positive results for its investigational drug, SDN-03 few days back. Drug is useful in the treatment of inflammation & pain due to ocular surgery.
- In the last month, Sun Pharma announcing its geographical expansion plans of its specialty business in Greater China and Japan will definitely enhance the company’s profit margins.
- Specialty medicines are used in treatment of Oncology, autoimmune diseases and immunology which are considered the major segments in the chronic, complex & rare diseases space which is expected to be likely the key growth drivers in the 2019-2024 period.
- Fastest growth for Speciality medicines Is expected to be in the developed markets that is expected to accounts for more than 50% contribution by 2024 as per Sun Pharmaceuticals.
- Sun Pharma’s Japanese subsidiary got approval from the Japanese government for specialty product Ilumya that is used in treatments of plaque psoriasis in adult patients in Japan in June this year.
Concerning Factors
- Negative Quarter-on-Quarter growth.
- Negative Cash Flow
- High Minority Interest
- Ex-board member Ashwin Dani of Sun Pharma is getting investigated by SEBI regarding the alleged role in an insider trading case which is related to trading in the shares of Ranbaxy Laboratories between 2013 and 2015.
- Sun Pharma had to recently recall 747 bottles of generic diabetes drug in the U.S. due to a possibility of the affected lot containing cancer causing nitrosodimethylamine (NDMA) above the acceptable intake limit.
NOT A MULTIBAGGER
Summary
This is just an Evaluation on Sun Pharamaceuticals based on Subscriber Request. You can send your Free Evaluation Request to FuturecapsAdvisor@Gmail.com.
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