Sun Pharma Q1 preview: Higher sales forex gains could push net profit up 71%

India's largest drug maker, Sun Pharma, is likely to report a 71 percent year-on-year (YoY) increase in its net profit for the June quarter on the back of sales growth in India and the depreciation in the rupee.

The company's US sales may remain flat, but are expected to gain momentum because of the resolution of irregularities pertaining to quality standards at its Halol plant, and launches of specialty drugs.

The growth in the domestic formulation business will be aided by the low base of the corresponding quarter last year on account of supply chain disruption caused by the rollout of goods and services tax.

For the first quarter of FY17, the company had reported a net profit of Rs 525.6 crore.

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The average of estimates of analysts polled by Reuters pegged the company's net profit for the reporting quarter at Rs 900 crore and its revenue Rs 6,957, up 12.8 percent on year.

Analysts expect the company's earnings before interest, tax, depreciation and amortisation margin to be around 20 percent.

Sun Pharma's US-listed subsidiary Taro Pharmaceutical Industries' sales for the June quarter fell 4.2 percent on year to $154.6 million.

But Taro reported a 23.5 percent rise in its net income for the quarter to $67.3 million, despite putting up a weak operational show, and incurring higher tax expense.

The growth in its bottom line was largely because of foreign exchange gains and finance income.

"Expect US revenue ($365 millon) to remain flat sequentially, with Taro expected to decline by 4 percent (~$5 million) sequentially," said Edelweiss Research in its report.

"Base business erosion is likely to offset launch of generic Welchol AG and commercialisation of Yonsa. Domestic sales expected to grow 20 percent YoY, on a favourable base impacted by GST related disruptions," the research firm said.

"Management has given low double-digit growth guidance for consolidated sales for FY2019 based on the assumption that Halol will be cleared in H2FY2019. EIR comes as an early surprise and clears the path for new product approvals and launches. Now the focus shifts to business performance and approvals to drive growth in the US business as the key monitorable," domestic brokerage Sharekhan said in a recent report.

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