The document provides a comprehensive analysis of the Indian pharmaceutical industry, highlighting its significant global role, expected market growth, challenges faced during COVID-19, and opportunities for development. It focuses on Sun Pharmaceutical Industries, detailing its business description, competitive landscape, growth drivers, challenges, and financial performance, particularly in light of COVID-19's impact. Key growth drivers include increased demand for generics, government initiatives, and strategic mergers and acquisitions.

1. EQUITY RESEARCH REPORT
INDUSTRY ANALYSIS
SubmittedBy:
Himanshi Karmakar(04)
Rashmi Kaushal ( 18)
PGDM – PT
Prof:Nidhi Malhotra

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CONTENTS
Industry Analysis
I. Introduction
II. Market Size
III. Challenges
IV. Threats during COVID-19
V. Opportunities during COVID-19
VI. Key Growth Drivers of Industry
VII. Industry Financial Ratios
Company Analysis
I. Business Description
II. Major Competitors
III. Geographical Location
IV. Key Growth Drivers of Company
V. Challenges faced by Company
Ratios Analysis
I. Basic Details (Trading Details)
II. Financial Ratios
III. Interpretation of Ratios
IV. Conclusion

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Pharmaceutical Industry
Industry Analysis
I. Introduction
India is the largest provider of generic drugs globally. Indian pharmaceutical sector industry supplies over
50 per cent of global demand for various vaccines, 40 per cent of generic demand in the US and 25 per
cent of all medicine in UK.
Presently over 80 per cent of the antiretroviral drugs used globally to combat AIDS (Acquired Immune
Deficiency Syndrome) are supplied by Indian pharmaceutical firms.
II. Market Size
Indian pharmaceutical sector is expected to grow to US$ 100 billion and medical device market expected
to grow US$ 25 billion by 2025. Pharmaceuticals exports from India stood at US$ 19.14 billion in FY19 and
US$ 13.69 billion in FY20 (up to January 2020). Pharmaceutical exports include bulk drugs, intermediates,
drug formulations, biologicals, Ayush & herbal products and surgical. Indian companies received 304
Abbreviated New Drug Application (ANDA) approvals from the US Food and Drug Administration (USFDA)
in 2017 and received a total of 415 product approvals in 2018 and 73 tentative approvals. The country
accounts for around 30 per cent (by volume) and about 10 per cent (value) in the US$ 70-80 billion US
generics market.
India's biotechnology industry comprising biopharmaceuticals, bio-services, bio-agriculture, bio-industry
and bioinformatics is expected grow at an average growth rate of around 30 per cent a year and reach US$
100 billion by 2025.
India’s domestic pharmaceutical market turnover reached Rs 1.4 lakh crore (US$ 20.03 billion) in 2019,
growing 9.8 per cent year-on-year (in Rs) from Rs 129,015 crore (US$ 18.12 billion) in 2018.
III. Challenges
1. Developing new medicines that can cure (or prevent) today’s incurable diseases.
2. Customer Expectations are rising continuously.
3. Scientific Productivity is Lackluster and Stagnant.
4. Pharmo-economic performances of drugs is increasingly being scrutinized by healthcare Payers.
5. The Self Medication Sector is expanding rapidly.
6. Management culture issues are slowing much needed changes.
IV. Threats during COVID-19
1. Ongoing and planned clinical trials for other diseases are getting postponed which will delay the
development of new medicines.
2. Import of raw materials is restricted, which will affect the manufacturing activity and in turn will lead
to lower sales.
3. Insufficient ancillary supplies such as bottles, caps and packaging material for medicine will affect
the output, the impact of which is expected to be felt over a period of next 3 to 4 quarters. This
supply shortage may also lead to pricing volatility in future.
4. Companies will try to maintain inventories for longer duration, buffer capacity will be increased
which may affect the inventory cycles.
5. Planned mergers and acquisitions, new projects and ventures have been put on hold for a while.

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V. Opportunities during COVID-19
1. API (Active Pharmaceutical Ingredients) and KSM (Key Starting Material) supply and shipping from
China getting affected, revised its outlook on the Indian pharmaceutical industry to ‘negative’ from
‘stable’.
2. Around 60 per cent of raw materials in Indian pharma industry was imported, mainly from China.
For certain APIs, China accounts for up to 70 per cent, while it is the exclusive supplier when it
comes to many KSMs.
3. Union cabinet cleared a slew of measures to promote manufacturing of APIs and KSMs within the
country.
4. It is very possible that for cost cutting measures, major drug makers may outsource the projects
of secondary importance to smaller pharmaceutical companies
5. The domestic players can benefit from grabbing new projects and, if accompanied by favorable
government policies, can boost the pharmaceutical business of resource limited as well as
developed countries.
6. Companies may focus on backward integration for APIs and intermediates.
VI. Key Growth Drivers of Industry
1. Supply Side Drivers : Cost advantage, skilled manpower, India major manufacturing hub for
generics, India accounts for 22% of overall USFDA approved plants, increased penetration of
chemists.
2. Demand Side Drivers : Increased fatal diseases, accessibility of drugs to greatly improve,
increasing penetration of health insurance as well as increased government and private sector
spending on hospitals. Now, more and more Indian middle class families are choosing for health
insurance facilities thereby gaining access to quality medical facilities. This contributes towards
high spending on expensive drugs, growing number of stress related disease due to change in
lifestyle which leads to increase in lifestyle disorders disease like diabetes, depression etc. together
contribute to rise in patient pool and attracting more spending on generics as well as patented
medicines, better diagnostic facilities.
3. Increased Investments : FDI inflows worth US$ 13.34 billion in last 15 years – as per the data
released by Department of Industrial Policy and Promotion (DIPP). The government has also
allowed 100% FDI in the pharmaceutical sector under automatic route to manufacture medical
devices subject to certain conditions.
4. Government Initiatives: Regulations and certain initiatives like Drug Price Control Order, National
Pharmaceutical Pricing Authority, Patents (Amendment) Act 2005 for favorable intervention in the
growth of pharmaceutical industry. National Health Policy 2015, focusing on increasing public
expenditure on healthcare segment.
5. Branded Drugs and Specialty Medicine: 73 new branded drugs were introduced to market in
2015. The market for branded drugs is expected to reach $91 billion by 2020.
6. Off-Patent Drugs: Healthcare reforms have helped increase the use of generic medicine as well,
helping to add to the increased market size.
7. Healthcare Reform: The healthcare legislation passed in 2010 elevated patient demand for
pharmaceuticals, although pharmaceutical companies also saw increased taxes tied to rebate
programs. These companies passed the cost on to buyers in the form of higher drug prices.
8. Changing Drug Status: There is an increase in the market size of generic medication that
correlates. New medications coming onto the market make up the difference in prescription
medication market size.
9. Chronic Alignment & Rare diseases: There is also an increasing market size for pharmaceuticals
that treat rare diseases as advancements in pharmaceuticals offer more solutions and
advancements in medicine uncover more problems.

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10. Healthcare & Technology convergence: Technology is increasingly becoming a part of
healthcare.
11. Higher Drug Prices: When companies passed the taxes onto to customers, some medications
saw a large increase in price.
VII. Financial Ratios (Industry Average P/E, P/B, Dividend Yield)
S.No. Key Ratios Mar’20 Mar’19 Mar’18
1 Price/EPS (X) 33.21 50.08 42.37
2 Price/BV (X) 3.26 3.94 4.33
3 Dividend Yield 0.67 0.56 0.49
About Company
I. Business Description
Sun Pharmaceutical Industries Ltd., world’s fifth largest specialty generic pharmaceutical company. The
company manufactures and markets pharmaceutical formulations covering a broad spectrum of chronic
and acute therapies. The company got incorporated in the year 1983 and began its operation in Kolkata
with just five products to treat psychiatry ailments. Initially, sales were limited to two states in Eastern India.
In the year 1994, the company got listed on the main stock exchange in India. India and US, the two
dominant markets with nearly 70% of company’s revenue. The company invests around 7-8% of its global
revenue each year in R &D. The R&D capabilities cover the development of differentiated products. The
company holds 8% share of domestic pharma market (as per the latest ORG IMS MAT data) and has strong
presence in lifestyle therapeutic segments. The exports contribute around 56% to the revenues. Caraco
pharmaceuticals Ltd., has helped Sun Pharma to grow its US business, which brings in synergies by way
of backward integration in both manufacturing and R&D.
In FY19, formulations in US contributed the most to company’s sales with 37 per cent, followed by India
with branded formulations at 26 per cent.
II. Major Competitors
The major top 10 competitors in Sun Pharma’s competitive set are Abbott India Ltd., Cipla Ltd., Mankind
Pharma Ltd., Zydus Cadila, Lupin Ltd., Alkem Laboratories Ltd., Torrent Pharmaceutical Ltd., Intas
Pharmaceuticals Ltd., Macleods Pharmaceuticals Pvt. Ltd., GSK pharmaceuticals Ltd.
III. Geographical Location
The company has its global presence with 41 manufacturing facilities across the world. Sun Pharmaceutical
Industries Limited is an Indian multinational pharmaceutical company headquartered in Mumbai,
Maharashtra, that manufactures and sells pharmaceutical formulations and active pharmaceutical
ingredients (APIs) primarily in India and the United States. There are multiple offices in these below
locations:

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Office Locations
Corporate Office Maharashtra
Registered Office Gujarat
R & D Centre Himachal Pradesh, Gujarat, Maharashtra, Gurgaon
Branch Office Punjab
Factory/plant
Dadra & Nagar Haveli, Gujarat, Madhya Pradesh, Tamil Nadu, Punjab, Ohio (US),
Himachal Pradesh, Bangladesh, Hungary, Janos, Goa, Chacaras, Mexico, USA,
Haifa Bay, Maharashtra, Karnataka
IV. Key Growth Drivers of Company
1. Identification of Speciality segment
To generate consistent shareholder value, the company has identified the speciality segment as one such
driver which helped company to transition up the value chain. With this segment, the company targeted the
global market with IS being one of the major market. The company has also enhanced its global speciality
pipeline through acquisitions and partnerships with a hope of future long term gain.
2. Influenza Drug Market
The company is currently working in the Influenza Drug market which is expected to grow globally at a
steady CAGR 2.1% and is estimated to reach USD 2.05 billion by 2026 due to increasing prevalence of
Influenza disease, vulnerable aging population, accelerating demand of clinical treatment and novel
therapies indicates the significant growth of market.
3. Mergers & Acquisitions
Sun Pharma made 16 acquisition from 1997 to 2018 to expand in the new market, segment, technical
complex products, etc., Out of 18 acquisitions, Sun Pharma-Ranbaxy Laboratories being the biggest M &
A transactions in India. The company is a major global speciality pharma company has acquired Ranbaxy
having global footprint and presence in generic segment and became the 5th largest speciality generic
pharma segment. Acquiring a stake in Israel-based Taro Pharmaceutical Industries, a move that more than
doubled its revenue in the US to $1.1 billion from $484 million. Last acquisition of Polo pharma in Japan in
the year 2018, to build the dermatology business globally.
4. Cost Leadership
The strategy benefitting the company is low-cost which includes low manufacturing cost and employee
costs and vertically integrated API Division that generates cheap raw materials.
V. Challenges faced by Company
1. Managing Regulatory Issues
Sun Pharma struggled to retain its operations in one of its US subsidiaries, Caraco Laboratories, that could
not be sustained and had to shut down the production facility. The company has also faced heavy cost in
resolving regulatory issues in Ranbaxy’s key manufacturing units, two main production units at Gujarat.
Ranbaxy’s manufacturing facilities in MP, HP and Punjab have been under import ban by US drug regulator.
USFDA has also issued warning to its own manufacturing unit at Halol, Gujarat due to inability of company
to rectify the issues on time. The company’s biggest challenge is the risk of changing global regulations on
drug manufacturing, approval processes, product pricing, and taxation.
2. Competition in Generic Drugs

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Sun Pharma entering the specialty drug market despite of huge investments in discovering specialty drugs.
Companies must invest significant time and money on clinical development, regulatory filings, brand
building, front-end distribution, ensuring coverage of payers, raising sales force to motivate doctors to write
more prescriptions. Since specialty drugs are not breakthrough innovations there is always a sword of a
copy hanging.
3. Inorganic Growth
Sun Pharma has had a successful track record of turning around distressed assets. It bought Caraco,
Taro and Ranbaxy, apart from companies such as Dusa, URL and Insite Vision to ramp up its specialty
business. However, this strategic inorganic expansion could not insulate the company’s product portfolio
from the price erosion in Taro as well as non-Taro businesses in the US.
4. Collusion Charges
One of the overhangs on the Sun Pharma stock is the uncertainty surrounding the outcome of the
Department of Justice enquiry on the drug price collusion case in the US. Sun is one of the Indian
companies facing enquiry and an adverse verdict may potentially hit its prospects. While the company
had maintained that the results of the enquiry may not have material impact on the company’s financials,
the Street is nevertheless apprehensive, given the current political scenario in the US.
5. Promotors Investments in noncore business
Investment in unrelated areas such as oil and gas and wind energy in his personal capacity had also put
investors on the edge. There had been concerns about the cash generated by the pharma business being
deployed to fund the new capital-intensive ventures.
Challenges faced by Company during COVID-19
1. Lack of guidance
The lack of guidance for the current financial year comes even as the company posted a 14% growth in
revenue to Rs8,185 crore in January-March on account of strong sales in India.
2. Drug testing for coronavirus
Sun Pharma plans to initiate the clinical trials at the earliest considering the pandemic situation and urgent
need for newer treatment options for Covid-19. The company has initiated manufacturing of both, the API
and the finished product of Nafamostat in India, using technology from Pola Pharma Japan which is its
subsidiary.
3. Employees tested COVID positive
Employees tested positive were part of the company's production and packaging departments. The
company has set up its own quarantine facility and has given the option to employees quarantined
elsewhere to move to the facility which is worst hit by the coronavirus pandemic.
VI. Basic details
Trading Symbol in NSE/BSE,

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52 Wk High 512.55
52 Wk Low 315.20
Market Cap(Mil.) Rs. 1,134,766.00
Shares Outstanding(Mil.) 2,399.33
VII. Financial Ratios
S.No. Key Ratios Mar’20 Mar’19 Mar’18
1 Price/EPS (X) 31.26 152.88 422.65
2 Price/BV (X) 3.46 5.03 5.32
3 EV/EBITDA (X) 21.22 39.8 59.58
4 Gross Profit Margin(%) 17.15 11.67 5.45
5 Operating Profit Margin(%) 21.63 17.04 10.86
6 Return on Assets (%) 8.36 2.16 0.83
7 Return on Net worth / Equity (%) 13.16 3.57 1.36
8 Total Debt/Equity (X) 0.24 0.26 0.3
9 Interest Cover 8.97 4.58 4.17
10 Basic EPS (Rs.) 13.38 3.4 1.3
11 Dividend / Share(Rs.) 4 2.75 2
1. Price Earnings Ratio: The ratio relates company’s share price to its earnings per share.
Price Earnings Ratio = Market Price of stock / EPS
The higher ratio indicates that market is willing to pay more than company’s earning itself. However,
in the case of Sun Pharma, the P/E ratio has significantly decreased in the last three years. High
P/E ratio in the year 2019 & 2018 may be considered as positive future performance of the company
and earnings growth as investors were read to pay more in the last two years. The reason could
be due to mergers and acquisition and announcement in the year 2017 for diversifying the business
in speciality segment.
In the year, 2020 the ratio has gone down indicating that the investors’ confidence in the growth of
the company has decreased and therefore not willing to pay more.
However, growth stocks are usually more volatile and sometimes considered overvalued, on the
other hand lower P/E can be undervalued.

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2. Price to Book Value Ratio: The ratio relates company’s share price to its book value per share.
Price to Book Value Ratio = Market Price of stock / BV per share
The higher ratio indicates that market is willing to pay more than company’s recorder book value.
The reason could be future growth prospects of the company, company’s image, value of intangible
assets such as patent filling. For instance, in the year 2018 the company gains 1% after company
received license to sell the generic version of Linzess in the US from Feb, 2031.
The P/B ratio of the company has also decreased from 5.32 to 3.46 because the book value per
share have increased but the value does not exceed the market value of the stock. The increase
in book value can be attributed to the fact of increase in the assets in the book of accounts may
due to mergers and acquisition, thereby decreasing the P/B ratio.
Also, manufacturing industries due to heavy assets have low P/B ratio.
3. EV/EBITDA: The ratio that compares company’s enterprise value to Earnings before interest,
taxes, depreciation and amortization.
EV/EBITDA = Enterprise Value / EBITDA
Generally, lower the ratio better it is as it also takes into account the debt on company’s balance
sheet.
4. Gross Profit Margin Ratio: This ratio indicates that how much a company is making profit after
paying off its Cost of goods sold(COGS).
Gross Profit Margin Ratio = (Total Revenue – COGS) / Total Revenue
The ratio of the company has increased 2.1 times since last three years from 5.45 to 17.15 which
indicates that company has significantly reduced their production costs or cost involved in
producing the goods. Reducing the COGS will increase the total revenue value in numerator Higher
the ratio, more efficient the company.
5. Operating Profit Margin: This ratio indicates how well the company is managing its expenses to
maximize profitability.
Operating Profit Margin Ratio = EBIT / Total Revenue
So, higher the ratio better it is as it indicates company is able to manage all its operating expenses
and the business is profitable. The operating profit margin of the company has also increased since
last three years.
6. Return on Assets: The ratio indicates how performance of a company, how well it is generating
the net income to the total capital it has invested in assets or we may say that how well the company
is utilizing their assets in order to generate more income.
Return on Assets = Net Income / Total Assets
Since the pharmaceutical industry is capital intensive, total assets will be higher in comparison to
non-manufacturing industry. Also, return on asset can be increased by either increasing the net
income or by decreasing the total assets.

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As per the data of three years the return on assets have increased for Sun pharma indicating the
company has either:
Increased net income either by better pricing, economies of scale (large volume at low cost) or
lowered the production cost thereby increasing efficiency/productivity.
Decreasing the total assets by reducing accounts receivable or increasing the inventory turnover
ratio.
However, looking at Gross Profit/Operating profit ratios we may say company has reduced the cost
and focused on providing drugs at better pricing increasing the net income.
7. Return on Equity: The ratio indicates how much returns company is providing to shareholders of
a company.
Return on Equity = Net Income / Shareholder’s Equity
Return on Equity can be increased by either increasing the net income or decreasing the
shareholder’s equity. However, decreasing the shareholder’s equity may lead to increase in debt
in the capital structure which may be feasible in the times of good economy but not in the times of
bad economy or situations like inflation, COVID, etc.,
Increasing the net income may benefit the company overall in increasing the return on equity and
maintaining the overall profitability ratios.
As per the three years’ data company’s ROE has increased which may be due to the increase in
net income in comparison to increase in shareholder’s equity. (As shown in the table).
Mar’20 Mar’19 Mar’18
PROFIT/LOSS AFTER TAX AND BEFORE
EXTRAORDINARY ITEMS
3211.14 816.6 305.64
NETWORTH 24,396.22 22,843.61 19,770.10
The exceptional increase in the PAT of Mar’20 is due to sales which has gone up to 21% in
comparison to 2019 and 2018. Situation like COVID where pharmaceutical sector worked well all
over the world may has proven better results for the company.
8. Total Debt/Equity ratio: This is leverage ratio and indicates the extent of debt in the capital
structure. Higher debt in a firm’s capital structure can be risky.
Debt-to-Equity Ratio = Short term debt + Long Term Debt + Other fixed payments /
Shareholder’s Equity
From the three years’ data, the company has significantly reduced its debt to equity ratio. The
decrease in the ration may be due to increase in revenues (Price increase/Volume increase),
reducing the production cost, increase in the free cash flows which will help the company in paying
the debt. As shown in the below table the revenue has increased and cash flow from 2018 to 2019
has also increased significantly from the cash flow statement:
Mar’20 Mar’19 Mar’18

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Cash And Cash Equivalents Begin of
Year
0.00 97.80 147.52
Cash And Cash Equivalents End Of
Year
0.00 302.76 97.80
REVENUE FROM OPERATIONS
[GROSS]
11,906.74 9,783.29 8,774.41
9. Interest Coverage Ratio: The ratio indicates how easily the company can pay interest on its
outstanding debt.
Interest Coverage Ratio = EBIT / Interest Expense
Interest coverage ratio of the company has increased two times in three years from 4.58 to 8.97
which indicates that company is paying off the large interest payments.
10. Earnings per share (EPS): EPS is a useful measure of profitability.
EPS = (Net Profit after Taxes – Preference Dividends) / Number of Equity Shares
The EPS of a company has significantly increased indicating that the earning power of
company has increased and investors will invest in the company.
The drastic increase in EPS from 3.4 to 13.36 could be due to increase in PAT and revenues of the
company.
11. Dividends per share (DPS): DPS indicates the amount a firm pays out its dividends to
shareholders.
Dividend Per Share = Total Dividends Paid / Shares Outstanding
DPS has also increased from 2.75 to 4 due to increase in earnings per share, an important
parameter for the investor to know how much company will be able to pay to the invertor on per
share basis.
Comparison of Financial Ratios (Sun Pharma V/s Industry)
S.No. Key Ratios
Mar’20 Mar’19 Mar’18
Sun
Pharma
Industry
Sun
Pharma
Industry
Sun
Pharma
Industry
1
Price/EPS
(X)
31.26 33.21 152.88 50.08 422.65 42.37
2 Price/BV (X) 3.46 3.26 5.03 3.94 5.32 4.33
3
Dividend
Yield
0.67 0.56 0.49
Following are the observations made on comparing the financial ratios of Sun Pharma with Pharmaceutical
Industry:
1. P/E ratio: In the year 2018 and 2019, company’s P/E ratio is much higher than Industry and can
be said an overvalued stock and expensive and investors could have sold.

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Now, if we see the Mar’20 data the P/E ratio of the company is undervalued than industry.
However, at present the P/E of the company is 35.64 than industry average 31.08 which is
again overvalued. This could be due to rise in the stock price from 315.20 (30th Mar, 2020) to
476 (as on 04th Jul, 2020).
2. P/B ratio: In the last three years, company’s P/B ratio is higher than industry and is overvalued.
3. Dividend Yield: As the dividend yield of the company increased in the last three years which
indicates the company paying substantial share of its profits in the form of dividends. In addition to
this company’s EPS has also grown over the years and company paying higher dividend to their
shareholders when compared with the industry.
Conclusion
Sun pharma has done extremely well in the last FY 2019-2020 as all the profitability ratios, interest coverage
ratio has gone up. One of the reason could be COVID like situation which is prevailing all over the world
since December.
Now, comparing the price multiple ratio with the industry, the company is overvalued currently and the stock
prices have also gone up in last two-three months may be due to the current situation of COVID, the pharm
sector is doing well and is attracting investors to invest in pharma stocks.
Overvalued stocks are sought by investors looking to short a position, selling shares to repurchase them
when the price falls back in line with the market. Overvalued companies have a future potential in terms of
the growth in a long term, not in short term.
In addition, the investor holding the stock currently may sell at present and can gain profits (stock price from
315.20 (30th Mar, 2020) to 476 (as on 04th Jul, 2020). However, for the investors who are looking forward
to invest in the company will be expensive for them and is thus associated with higher risk. So, the investors
who are willing to take the risk can invest but for shorter duration as once the COVID situation gets
normalized the value of the stock may decline as well as pharma sector where as risk averse investors will
not buy stocks of Sun Pharma.
Hence, it is not advisable to buy the overvalued company’s stocks, however depending upon the risk profile
of the investor, he may buy, sell, short sell, or hold the stock.