The most profitable large pharma company you can get your hands on is Sun Pharma. Together with Taro, its Israel-based subsidiary, Sun is the largest domestic company in the US generic market.
Profitability. Sun has consistently improved its margins over the last decade, with margins averaging 43 per cent. In the last three years, Sun has delivered average margins of 46 per cent. Helping Sun hit top margins is Taro. Taro's margins in the December 2014 quarter stood at 68.7 per cent.
Outlook. US sales bring in 60-65 per cent of revenues and have grown at 44 per cent annually in the last five years. India formulations (23 per cent of turnover) have grown 14 per cent annually during the same period. Sun has re-iterated its 13-15 per cent revenue guidance for 2015. It has filed 488 ANDAs (abbreviated new drug applications) and received 358 approvals.
Both Israel Makov, Chairman, and Dilip Sanghvi, promoter and Managing Director, have a history of making chasing acquisitions to fuel growth. Expect acquisitions in the future also. Sun had cash to the tune of ₹12,500 crore as of December 2014.
Valuations. Sun's outperformance has made it a market favourite. According to Jefferies, Sun could report earnings growth of 24 per cent in the next two years. After a 65 per cent run-up in the last 12 months, Sun trades at 36 times its TTM earnings as compared to its ten-year average of 28 times.
Valuations may appear high but the Sun Pharma of today is stronger than it has ever been, with the high performance Taro under its belt. Also, the benefits of the Ranbaxy acquisition do not appear factored in yet. These make Sun attractive even at the current price. Buy.