Dawn in the dusk

Till September, it was the best performing stock on the Indian markets for 2008. Even today, although Sun Pharmaceuticals’ share price is down by a third from its peak, it has still fallen less than the Sensex, which is off its peak by 60 per cent. If Sun Pharma is outperforming the broader market, that’s because there are few Indian companies that are able to consistently turn out growth rates of 30 per cent, even during a downtrend.

Sun Pharma’s well-honed, fourpronged game plan has paid off handsomely, with revenues doubling and net profits trebling over the past four years. Says Chairman & Managing Director Dilip Shanghvi: “Our focus has been consistently on four segments for growth and that is paying off.” The four segments are: Domestic branded prescription drugs, export of branded drugs, US generics and bulk drugs. In addition, the relentless focus on research & development (R&D) is beginning to pay off. Sun spends 8-9 per cent of sales on R&D—as against the norm of 2 per cent for Indian pharma companies— and this division develops 20-25 products every year, many of which are filed overseas. These efforts allow Sun to get approvals from the US Food & Drug Administration (FDA) to exclusively market generics for a certain period (that may extend up to 180 days) and rake in the moolah.

The segment on which Shanghvi is perhaps most optimistic is export of branded drugs. “There is an opportunity to become bigger and we can grow by 40 per cent over the next 4-5 years,” he says. Here too, R&D plays a critical role.

Another successful gambit of Sun Pharma has been its thrust on inorganic growth. Over the past 12 years, it has acquired eight companies, and has succeeded in making many of them kick in with meaningful contributions to revenues and margins.

One of its successful turnarounds has been the US-based Caraco Pharmaceuticals Labs in the mid-1990s. It’s latest play though, for Taro Pharmaceuticals of Israel, has run into rough weather, with Taro terminating Sun’s proposal a year after it was formalised.

Why Sun Pharma is a winner Focussing on the Indian branded prescription segment as well as on export of branded drugs Carved a niche in US generics Spend of 8-9 per cent of sales on R&D is paying rich dividends Acquiring loss-making drug companies and turning them around

The Indian company hasn’t given up, and its interest in Taro remains. However, a war chest that’s brimming with $540 million in cash allows Sun to keep an eagle eye for alternative acquisition targets.

A dampener for Sun Pharma has been the USFDA coming down on its Caraco and withholding marketing approvals for medicines made at its Detroit manufacturing base. That’s an irritant Sun will have to tackle, as 21 out of 103 drugs pending approval in the US are from the Caraco stable. Analysts, like those at ICICI Securities, are hopeful of a “likely resolution of the warning letter (by the USFDA) by the end of the first half of 2009-10”. Till then, there’s little else to indicate that Sun Pharma will forget winning ways.