Daiichi Sankyo sold its entire 8.9% stake in Sun Pharmaceutical Industries through an offer for sale at an average price of Rs932 per share, realizing US$3.2 billion and taking a 30% loss on its original investment in Ranbaxy Laboratories. The analyst maintains a buy rating on Sun Pharma with a target price of Rs1138, believing the company's fundamentals remain strong and its current valuation is compelling relative to peers following a 21% decline over the past two weeks.

1.
Sun Pharmaceutical Industries
Compelling valuation post stake sale of Daiichi
April 21, 2015
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Event Update
Surajit Pal
surajitpal@plindia.com
+91‐22‐66322259
Rating BUY
Price Rs952
Target Price Rs1,138
Implied Upside 19.5%
Sensex 27,676
Nifty 8,378
(Prices as on April 21, 2015)
Trading data
Market Cap. (Rs bn) 1,972.2
Shares o/s (m) 2,071.2
3M Avg. Daily value (Rs m) 5334
Major shareholders
Promoters 63.65%
Foreign 21.67%
Domestic Inst. 4.88%
Public & Other 9.80%
Stock Performance
(%) 1M 6M 12M
Absolute (7.3) 19.4 53.3
Relative (5.2) 15.3 31.7
How we differ from Consensus
EPS (Rs) PL Cons. % Diff.
2016 35.3 35.2 0.2
2017 39.3 42.2 ‐6.9
Price Performance (RIC: SUN.BO, BB: SUNP IN)
Source: Bloomberg
0
200
400
600
800
1,000
1,200
1,400
Apr‐14
Jun‐14
Aug‐14
Oct‐14
Dec‐14
Feb‐15
Apr‐15
(Rs)
Daiichi’s stake sale of 8.9% today in their offer for sale (OFS) has resulted in
removing the uncertainty over when Daiichi will exit from the ambitious entry into
Indian market which turned into a whimper getting over with the stake sale. Sun
Pharma’s valuation have decreased over 21% in the last 14 days resulting in a PER
contraction to 24x from 30.5x for FY17E. Despite the stake sale, the valuation
correction in the last 14 days (post its peak of Rs1,200) has resulted in the erosion
of the premium that made it at‐par with peers. The company’s business
fundamentals have remained unchanged all through this period and we believe
that over a period, the company will regain the premium valuations, and the
current valuations are compelling for investment.
Maintaining 11% and 36% CAGR in sales and PAT in FY14‐17E, we believe that Sun
Pharma will regain back premium valuation in comparison to peers. Retaining our
TP at Rs1,138, we upgrade our recommendation to ‘BUY’ and suggest further
additions to current holdings of the stock or new addition to the portfolio.
 Daiichi’s offer for sale: Daiichi offered today its entire stake of 8.9% (215m
shares) in Sun Pharma, which the company received post their merger between
Ranbaxy and Sun Pharma in April 2015. Daiichi’s ‘offer for sale’ came with price
range of Rs1,043.8—930. The company’s lower range of offer price implies
10.9% discount to yesterday’s closing price.
 Execution of the offer for sale: The execution of the offer for sale was
implemented at an average price of Rs932, implying the deal value of US$3.2bn.
Comparing acquisition price of US$4.6bn for buyout promoter’s stake in
Ranbaxy, Daiichi incurred 30% loss from their investment in Ranbaxy in June
2008.
Key financials (Y/e March) 2014 2015E 2016E 2017E
Revenues (Rs m) 160,804 175,304 201,875 222,584
Growth (%) 42.3 9.0 15.2 10.3
EBITDA (Rs m) 71,956 78,010 98,919 110,402
PAT (Rs m) 57,218 58,596 73,112 81,388
EPS (Rs) 27.6 28.3 35.3 39.3
Growth (%) (19.9) 2.4 24.8 11.3
Net DPS (Rs) 2.5 2.5 2.5 2.5
Profitability & Valuation 2014 2015E 2016E 2017E
EBITDA margin (%) 44.7 44.5 49.0 49.6
RoE (%) 33.9 27.0 26.1 23.2
RoCE (%) 29.8 24.7 25.9 22.9
EV / sales (x) 11.9 10.6 9.0 7.8
EV / EBITDA (x) 26.7 23.9 18.3 15.8
PE (x) 34.5 33.7 27.0 24.2
P / BV (x) 10.5 8.0 6.3 5.1
Net dividend yield (%) 0.3 0.3 0.3 0.3
Source: Company Data; PL Research

2.
April 21, 2015 2
Sun Pharmaceutical Industries
Income Statement (Rs m)
Y/e March 2014 2015E 2016E 2017E
Net Revenue 160,804 175,304 201,875 222,584
Raw Material Expenses 27,793 33,483 32,502 35,613
Gross Profit 133,010 141,821 169,373 186,971
Employee Cost 20,744 21,913 26,648 28,936
Other Expenses 40,310 41,898 43,807 47,633
EBITDA 71,956 78,010 98,919 110,402
Depr. & Amortization 4,094 6,376 7,471 8,532
Net Interest 442 605 335 304
Other Income 5,081 3,303 3,402 3,504
Profit before Tax 72,501 74,332 94,515 105,069
Total Tax 7,908 6,690 8,506 9,456
Profit after Tax 64,594 67,643 86,009 95,613
Ex‐Od items / Min. Int. (42,973) 9,046 12,896 14,224
Adj. PAT 57,218 58,596 73,112 81,388
Avg. Shares O/S (m) 2,071.2 2,071.2 2,071.2 2,071.2
EPS (Rs.) 27.6 28.3 35.3 39.3
Cash Flow Abstract (Rs m)
Y/e March 2014 2015E 2016E 2017E
C/F from Operations 93,008 26,981 79,665 88,480
C/F from Investing (8,390) (7,997) (11,890) (12,268)
C/F from Financing (29,408) 15,045 (12,988) (6,992)
Inc. / Dec. in Cash 55,210 34,028 54,786 69,220
Opening Cash 20,691 75,901 109,930 164,716
Closing Cash 75,901 109,930 164,716 233,936
FCFF 25,037 51,630 53,400 67,667
FCFE 47,330 29,922 53,937 68,296
Key Financial Metrics
Y/e March 2014 2015E 2016E 2017E
Growth
Revenue (%) 42.3 9.0 15.2 10.3
EBITDA (%) 47.0 8.4 26.8 11.6
PAT (%) 60.1 2.4 24.8 11.3
EPS (%) (19.9) 2.4 24.8 11.3
Profitability
EBITDA Margin (%) 44.7 44.5 49.0 49.6
PAT Margin (%) 35.6 33.4 36.2 36.6
RoCE (%) 29.8 24.7 25.9 22.9
RoE (%) 33.9 27.0 26.1 23.2
Balance Sheet
Net Debt : Equity (0.3) (0.4) (0.5) (0.6)
Net Wrkng Cap. (days) 286 219 287 303
Valuation
PER (x) 34.5 33.7 27.0 24.2
P / B (x) 10.5 8.0 6.3 5.1
EV / EBITDA (x) 26.7 23.9 18.3 15.8
EV / Sales (x) 11.9 10.6 9.0 7.8
Earnings Quality
Eff. Tax Rate 10.9 9.0 9.0 9.0
Other Inc / PBT 7.0 4.4 3.6 3.3
Eff. Depr. Rate (%) 4.7 6.8 7.2 7.5
FCFE / PAT 82.7 51.1 73.8 83.9
Source: Company Data, PL Research.
Balance Sheet Abstract (Rs m)
Y/e March 2014 2015E 2016E 2017E
Shareholder's Funds 188,006 246,692 313,746 389,076
Total Debt 24,890 3,183 3,720 4,349
Other Liabilities 36,210 30,876 40,457 50,527
Total Liabilities 249,106 280,751 357,923 443,953
Net Fixed Assets 58,245 58,291 60,820 62,288
Goodwill 18,346 12,330 12,330 12,330
Investments 27,860 22,503 24,393 26,661
Net Current Assets 135,022 175,971 247,941 329,414
Cash & Equivalents 75,902 109,930 164,716 233,936
Other Current Assets 90,979 102,480 118,752 133,064
Current Liabilities 31,858 36,439 35,528 37,586
Other Assets 9,633 11,656 13,400 15,405
Total Assets 249,106 280,751 358,883 446,098
Quarterly Financials (Rs m)
Y/e March Q1FY15 Q2FY15 Q3FY15 Q4FY15E
Net Revenue 39,269 47,505 42,795 42,899
EBITDA 17,239 21,611 19,126 19,997
% of revenue 43.9 45.5 44.7 46.6
Depr. & Amortization 1,280 1,672 1,316 1,329
Net Interest 66 244 180 183
Other Income 1,011 716 823 848
Profit before Tax 16,904 20,412 18,453 19,332
Total Tax 2,119 1,942 1,408 1,450
Profit after Tax 13,905 15,725 14,251 15,032
Adj. PAT 13,905 15,725 14,251 15,032
Key Operating Metrics (Rs m)
Y/e March 2014 2015E 2016E 2017E
Formulations 153,985 168,552 194,550 214,673
India Formulations 36,918 44,671 51,818 59,072
US Formulations 97,844 101,719 117,890 128,111
ROW Formulations 19,223 22,163 24,842 27,490
APIs 8,010 9,299 10,273 11,265
Source: Company Data, PL Research.

3.
April 21, 2015 3
Sun Pharmaceutical Industries
Prabhudas Lilladher Pvt. Ltd.
3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India
Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209
Rating Distribution of Research Coverage PL’s Recommendation Nomenclature
44.6%
39.1%
16.3%
0.0%
0%
10%
20%
30%
40%
50%
BUY Accumulate Reduce Sell
% of Total Coverage
BUY : Over 15% Outperformance to Sensex over 12‐months
Accumulate : Outperformance to Sensex over 12‐months
Reduce : Underperformance to Sensex over 12‐months
Sell : Over 15% underperformance to Sensex over 12‐months
Trading Buy : Over 10% absolute upside in 1‐month
Trading Sell : Over 10% absolute decline in 1‐month
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
DISCLAIMER/DISCLOSURES
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