The Sun will Shine and You will make hay

Sun Pharmaceutical Industries Limited is a Indian pharmaceutical company headquartered in Mumbai with global operations (Indian multinational).

Sun manufactures and markets pharmaceutical formulations and active pharmaceutical ingredients (APIs)

The company offers formulations in various therapeutic areas, such as Cardiology, Psychiatry, Neurology, Gastroenterology and Diabetes. It also provides APIs.

Sun Pharmaceuticals was established by Mr. Dilip Shanghvi in 1983 in Vapi with five products to treat psychiatric disorders.  Cardiology products were introduced in 1987 followed by Gastroenterology products in 1989.

Over the years, Sun has acquired multiple pharmaceutical companies, mostly in stress and successfully turned them around.

Sun Pharma has been under pressure for the past two quarters due to one-time charges due to merging Ranbaxy to itself along with compliance issues (USFDA) at its manufacturing unit (Halol) and the erstwhile Ranbaxy manufacturing units. However, the guidance for lower one-time expenses related to Ranbaxy merger indicates that the worst is probably over.

The con-call post the announcement of the Q2 indicated that Sun has already site transferred Gleevec from Halol to another US FDA approved plant and Ranbaxy merger synergy will be achieved ahead of schedule.  Sun has already sold a division of Ranbaxy (Solus and Solus Care) to Stride Arcolabs for Rs 165 Crore to consolidate the CNS division.

Earlier in September, Sun Pharma had announced plans to sell a manufacturing facility in Ireland (previously owned by Ranbaxy) as part of its consolidation process post the Ranbaxy merger

Post Ranbaxy, Sun through one of its subsidies has agreed to acquire US-based InSite Vision Inc. in a deal worth $48 million (about Rs.300 crore), benefits of which should start coming in the future quarters.  If media reports are to be believed, Sun is in advanced talks to buy a portion of Swiss drug maker Novartis' portfolio of old branded products in Japan in a deal estimated at $300 million (about Rs 2,000 crore).  Japan is the world’s second biggest market (by value) for pharmaceuticals.  The deal if consummated should open up a new market for Sun.

Sun Pharma also expects to get the phase 3 trial data for its novel molecule - MK3222, which was in licensed from Merck and is likely to be filed in CY 2017

Finally Sun is trading at Rs 742/- which is a 38% discount from the high of Rs 1200.7 it achieved a few month back.  Although Sun Pharma is not a cheap stock by any means with a forward PE of 36.2, but I think there is a lot of value in the stock as the earnings improve as the Ranbaxy merger slowly achieves synergy and the new acquisitions starts brining in more cash.

Sun's low-cost advantage, strong brand recognition, and proven capability in manufacturing complex products and turning around companies (Ranbaxy should be turned around pretty soon) supports sustainable long-term profitability.

As the news flow right now is negative for the company (USFDA warning to Halol plant), the price of the stock is down and as the saying goes either you get good news or good price.

I would be buying into the stock in every dips with a holding horizon of 3 years and my conviction is high that Sun will shine in the Indian Stock markets again pretty soon.  As the saying goes “make hay when sun shines” I hope to make hay as the Sun starts shining again but till then I will accumulate Sun Pharmaceuticals.

Disclaimer:  This is my current opinion.  I have a very small holding in Sun Pharma right now which I plan to increase.  I might change my opinion at any time, buy more or sell what I have or short sell.  Please consult your advisor before acting on my opinion.