NEW DELHI : Sun Pharmaceutical Industries Ltd's Q4 show was pulled up by strong India performance. The moderation in the US, and rest of world sales growth, however, meant overall performance remained muted and below expectations. The stock thereby declined more than 3% in morning trades on Friday.

The sales of branded formulations in India during Q4FY21, at Rs2,671 crore, grew by an impressive 12.9% year-on-year (y-o-y). Domestic sales accounted for 31.7% of total sales. The US finished dosage sales at $370 million, but it was a decline of 1.3% y-o-y. In rupee terms, too, US sales were down 0.7% y-o-y. The US contribution to overall sales was similar to that of domestic sales.

With emerging market sales (17% of overall) and rest of world sales (14% of overall) also reporting moderate growth of 5.5% and 2.8% y-o-y, it was not surprising that overall sales growth, too, moderated to 4.4%.

Lower other expenditure and employee costs, though, aided gross margins expansion. This meant Ebitda at Rs1,957 crore, could grow by 55.8% y-o-y. However, it is still short of expectations. Analysts at Motilal Oswal Financial Services Ltd (MOFSL) had expected Ebitda to come at Rs2,101 crore.

The moderation in US sales, however, was due to weak Taro (Sun’s US subsidiary sales). Taro continues seeing pricing pressure in its strong dermatology portfolio. The impact was further accentuated by softness in the prescription business due to covid spread. The rest of the US business, too, saw the impact of covid spread on prescription flows.

However, the positive is that the company’s US speciality portfolio, which holds the key for future US growth prospects continued performing well. The management highlighted that speciality business revenues grew helped by rising sales of products such as psoriasis treatment Ilumya, ophthalmology drug Cequa, and acne treatment Absorica.

Analysts at Jefferies India Pvt. Ltd said that we believe "factors that led to the decline are seasonal/reversible and we build a 12% revenue growth for Sun in FY22". This will be led by India business strength as well as normalization of Taro business post-covid.

Other analysts, too, are maintaining their positive outlook. Analysts at Kotak Institutional Equities said “Ilumya ramp-up remains on track with $143 million sales in FY21 (up 51% y-o-y)". They expect ramp-up in speciality segment to continue over FY22-23, driving strong earnings growth.

Notably, strong India performance supports confidence in Sun Pharma. Domestic performance has continued to strengthen in the last few quarters. Analysts at MOFSL have raised their earnings estimate by 9% and 8% for FY22 and FY23, respectively, factoring in heightened demand due to covid, steady growth in the chronic segment, and recovery in the sub-chronic category in the domestic formulations segment. The benefit of an expanded field force in the domestic arena and improving traction in the global speciality portfolio also aid earnings.