Why Sun Pharma dipped into Rs.2,277 crore loss in Q4FY21

The stock of Sun Pharma has been under a lot of pressure over the last 2 days since it announced its results for Q4FY22 and for the full fiscal year FY22. This fall came after Sun Pharma reported a net loss of Rs.2,277 crore for Q4FY22.

This was largely on the back of an extraordinary charge of Rs.3,936 crore on account of settlement charges of pending litigations in the US as well as restructuring of operations in other countries. 

If the extraordinary item is excluded, then the net profit in the fourth quarter would have actually grown by 18% YoY. Let us quickly touch upon the top line performance of Sun Pharma. Sales for Q4FY22 were up 11% at Rs.9,386 crore even as the EBITDA was up by 14.6% at Rs.2,280 crore.

In fact, the EBITDA margins expanded by 74 basis points to 24.8% on a YoY basis. So, results were not all that bad, if the extraordinary effect was eliminated.

The growth of Sun Pharma (leaving aside the extraordinary write-off) was driven by the India formulations business followed by the US formulations business. In India alone, Sun Pharma launched 11 new products in Q4 while increasing its market share meaningfully.

In the fourth quarter, the specialty sales were up 30% at $185 million while global Ilumya sales were 81% higher YoY at $315 million. There has been a serious shift out of generics.
 

The positive takeaway from the Sun Pharma numbers is that the there is a higher contribution coming from specialty and strong branded products. This is likely to tweak the product mix towards more remunerative businesses leading to improvement in margins.

In fact, the contribution of specialty products to overall sales of Sun Pharma has improved from 7% in FY18 to 13% in FY22. Most large brokers stay positive on Sun Pharma.

Now let me turn to the reason for the massive Rs3,936 crore write-off that Sun Pharma has taken in the fourth quarter. The exceptional write-off was towards amounts written off for settlements and provisions related to US based Taro Pharma as well as Ranbaxy Laboratories which Sun Pharma had acquired back in 2008 from the Singh brothers. The core performance of Sun Pharma, excluding the exceptional loss, is still robust.