BUY THE STOCK

Sun Pharmaceutical Industries
Recommendation: Buy
Price target: Rs1, 757
Current market price: Rs1, 604
Price target revised Rs1, 757

• The twin blow of unfavourable decisions for Protonix and Eloxatin would remain as an overhang on the stock in the near term. In order to factor in the loss in the Eloxatin opportunity, we downgrade our earnings estimate by 4.2% for FY2011. Our FY2012 earnings estimate remains largely unchanged given the resumption of Eloxatin sales in FY2012. This brings our earnings per share (EPS) estimate to Rs72 for FY2011 and to Rs84.5 for FY2012. We await more clarity on the Protonix front from the management and the court? S decision.
• However, we continue to believe that Sun Pharma remains one of the best pharmaceutical plays in India with its superior business model, leadership in chronic therapies, strong balance sheet and more limited competition opportunities like Effexor XR. With the impact of Caraco Pharmaceuticals and Taro Pharmaceuticals (Taro) already built in the price, we believe that the stock? S valuations reflect most of the negatives and the risk-reward ratio has become favourable for investors. At the current market price of Rs1, 604, Sun Pharma is valued at 22.4x FY2011E and 19.1x its FY2012E fully diluted earnings. Thus, we maintain our Buy recommendation on the stock with a revised price target of Rs1, 757 (20x its FY2012E and Rs67 for Taro).