Sunny days ahead
The fall in profitability after the Ranbaxy acquisition may have weighed heavily upon investors but it's just a matter of time that the company turns around its acquisitions
By Mohammed Ekram & Vikas Vardhan | Dec 11, 2015
Sun Pharma, the world's fifth largest specialty generic pharma company and India's largest domestic pharma company has long-term shareholders smiling all the way. Ten years ago, Sun Pharma was trading at R66 a piece (adjusted). Today the stock quotes at R881. An investment of R10,000 in Sun Pharma would be valued at R1.33 lakh today.
In the last decade, Sun has transformed from a R1,274-crore company (FY05 revenues) to R27,286 crore behemoth (FY15). The EBITDA during this period grew at 34 per cent per annum. The Sun Pharma you see trading today is a different creature from the one that you would have ten years ago. That's because Sun has made as many as eight acquisitions during this period. Two acquisitions are of note: first, Ranbaxy, the biggest of them all that came with USFDA investigations and, second, the once not-so-profitable Israeli firm Taro Pharma. Sun has had a terrific success with Taro, improving its profitability. Today Taro contributes one-fourth of Sun's bottom line. Ranbaxy has still to come out of the woods. Sun's bottom line shrank 44 per cent in Q4 FY15 partly on account of Ranbaxy.
Shrinking profits led to a prompt stock hammering. Even today Sun trades 25 per cent lower from its 52-week highs. The markets and its experts appear to focus on the short-term struggles Sun finds itself in. What many market participants don't give Sun credit for is Dilip Shanghvi's successful track record turning around acquisitions. Current chairman, Israel Makov, too has a successful track record growing Teva, one of the world's largest generic pharma company through multiple acquisitions. The markets don't appear to have patience. The recent market hit from its 52-week highs is the opportunity to load up on Sun.