Sun Pharma Eyeing To Become Top Company in India

Sun Pharma is a medium term bet

Sun Pharma - India's top pharma Indian company

Sun Pharma is a strong pharma company in India
Sun Pharma is a strong pharma company in India | Source

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Sun Pharma - position in the National Stock Exchange

� Quantity Traded
Deliverable Quantity (gross across client level)
% of Deliverable Quantity to Traded Quantity
1333617
991819
74.37
Sun Pharma - position in the National Stock Exchange

Sun Pharma has grown by leaps and bounds


Q2 Results Are Exaggerated

India’s most valued pharmaceutical company Sun Pharma has put up a strong show for the second quarter ended 30.09.11. But at the same time Q2 performance is incomparable with the results in the corresponding period of the previous year. The strong result is because of the 77% sales growth registered by the company’s formulation business in USA which may not be sustainable. The company’s performance has been boosted by lower expenses on R&D, foreign exchange gains due to depreciating rupee and some other short term opportunities. All the above factors are one time factors and not sustainable in the subsequent quarters. But at the same time, there is no denying that the financial position of Sun Pharma is very strong. Sun Pharma has forecast an increase of around 29% revenue in the current financial year. The formulation business in USA through Taro Pharmaceuticals accounts for over 40% of the company’s consolidated revenue.

Sun Pharma Is a Strong Company

If one factors the above things, the company’s Q2 performance may not appear impressive, but still it is above average. Caraco’s regulatory problems with US FDA also may pose problems for the company. Sun Pharma views India as one of the most promising markets. The company posted a 18% growth in revenue in Q2 from its Indian operations. This was above the industry average. The company is the market leader in niche areas like psychiatry, neurology and cardiology. In case Careco’s problems with US FDA are solved and its remediation procedure gets the agency’s node as is likely, Sun Pharma will receive increased revenue from its operations in USA. For Q3, Sun Pharma posted revenue of Rs.2145 crore. Sun Pharma‘s market share in the Rs.60000 crore pharma market in India is 4.5%.

Court Case in New Jersey

The shares of Sun Pharma are traded in the Indian stock markets at Rs.542.50 (NSE 17.02.12). The face value of the company’s shares is Rs.1. For the last two months, the company has been on a raising trend in the stock market. Drug producer Wyeth has estimated damages against Sun Pharma at $960 million for the launch of Protonix. Wyeth Pharmaceuticals Inc was acquired by Pfizer and it sells the generic pantoprazole under the trade mark Protonix which is registered. The same product was launched by Sun Pharma‘s subsidiary and Teva in USA. The case is being heard by the District Court, New Jersey. Sun Pharma and Teva are fighting the case that the patent registered by Wyeth is an invalid one.

Acquisition of Taro Is Not Yet Completed Fully

Sun Pharma will be pursuing with the Israeli company Taro to buy all the outstanding shares. It will involve an investment of $370 million for the company. Dilip Shanghvi is the Chairman of Sun Pharma. There is a tight process in USA to protect the minority shareholders and Sun Pharma will have to work hard to acquire the remaining shares of Taro. Sun Pharma offered to buy Taro at $24.40 which was at a premium of around 26% over its market price. Sun Pharma is a 30 years old company in India. Why should Sun Pharma be considered as the foremost Indian pharmaceutical company? For several reasons, it deserves this place.

Investors Have Got Good Returns in the Company’s Shares

Its financial performance over the last many years is inspiring. It has generated shareholder value. Many investors have been benefitted by investing in the company’s shares. Sun Pharma has produced growth through expansion, diversification, modernisation and acquisition. It was able to succeed in the most competitive international and domestic environment. It has followed the best practices in corporate governance and there has never been any complaint against Sun Pharma in this regard. It has treated its employees well and developed them.

Sun Pharma Is Resisting Multinationals

At a time when the multinational companies are scouting to purchase Indian pharmaceutical companies, Sun Pharma is expanding outwards and is scouting for opportunities abroad. When Ranbaxy, Shantha Biotech and other companies have fallen into the grab of foreigners, Sun Pharma refuses to yield. The company’s core team consists of, apart from its Chairman, Hiren Desai (Vice President Supply Chain), Sharda Crishna (Senior Vice President, Marketing), Abhay Gandhi (Senior Vice President, Emerging Markets) and Kirti Ganorkar (Senior Vice President, Business Development).

Sun Pharma - growing fast

Fragmented Pharma Market in India
Fragmented Pharma Market in India | Source

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Sun Pharma Eyeing To Become Top Company in India

Strong brand image for Sun Pharma


Sun Pharma Owns Top Nine Brands in India

Sun Pharma owns the top nine brands in India namely Glucored Group (oral anti-diabetic), Pantocid (proton pump inhibitor/anti-ulcer), Aztor (CVS, cholesterol reducing medicine), Susten (Women’s health), Gemer (Oral anti-diabetic), Strocit (CNS, stroke), Repace Group (CVS, hypertension), Cardivas (CVS) and Clopilet (CVS, anti-clothing agent).

Acquisitions Galore

Sun Pharma had undertaken several acquisitions in the past. It acquired Caraco in USA, it formed a joint venture with MSD, acquired Taro Pharma in Israel, acquired products of Forest’s Inwood business, acquired assets of Able Labs in New Jersey USA, acquired Chattem Chemicals Inc in USA, acquired ICN in Hungary, acquired a formation factory in Bryan in Ohio in USA, merged Milimet Labs with itself in India, acquired some brands from Natco in India, merged Tamil Nadu Dadha Pharma with itself in India, acquired a bulk drug facility from Knoll Pharma in India and acquired MJ Pharma in India.

Fragmented Pharma Market

Pharmaceutical industry in India is fragmented. It is not possible to have a huge market share of 50% or 60%. Competition among the players is very intense. Sun Pharma has a market share of 4.5%. Abbott Laboratories leads in market share with 6.1% followed by Cipla 5.1%, Ranbaxy 4.7% and GSK Pharma 4.6%. Sun Pharma comes fifth after these four players.

Loses a Patent Case to Sanofi

Sun Pharma received a boost on securing approval from US FDA for its Ultram ER tablets, a pain relieving medicine. But it has received a setback as it lost a patent case to Sanofi, the French drug major which has acquired Shantha Biotech in India. Now after this judgement, Sun Pharma cannot sell the generic version of the colon cancer drug Eloxatin in USA market till August this year. Sun Pharma has stopped contract manufacturing from this year onwards. This is in keeping with its status. Imagine General Motors manufacturing cars for a third party. How ridiculous it will be.

Unrelated Diversification into Power Sector

At a time when Sun Pharma is inching its way to become the top pharmaceutical company of India, its Chairman Dilip Shanghvi is planning to diversify into the power sector with an investment of Rs.5000 crore. Power is in shortage in India and therefore power sector is luring many players. But whether this unrelated diversification can bring any glory to the company remains to be seen. If Colgate Palmolive diversifies into production of motorcycles, one cannot definitely say that it will be a successful venture. But for ITC, it was a success when it diversified from its main tobacco area to other unrelated areas like hotels, agro foods etc. But ITC had to do this as tobacco business was considered unethical and attracting criticism.

Invest For Medium and Long Term

Investors can buy the shares of Sun Pharma at declines for medium and long term holding as it is a well managed Indian company with lot of international business.

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