Sun Pharma emerged higher on Friday after the company's conscious decision to move out of low-margin products proved judicious as far as profitability was concerned.

The scrip of the domestic pharma company gained 2.4% to Rs 290 (the day's high) on BSE by the end of two hours of trading. The scrip came off amid volatile trading.

From Rs 317.83 (adjusted for a 2-for-1 stock spilt) on 3 January 2003, the scrip shed 10.9% to settle at Rs 283.10 on Thursday, 30 January 2003 ahead of the Q3 results. It was from 13 January 2003, that the scrip started trading on a 2-for-1 stock-spilt basis.

For Q3 ended 31 December 2002, SPIL posted a 20% rise in net profit to Rs 55.86 crore (Rs 46.41 crore). Analysts had targeted Rs 49-58 crore. Net sales improved 7% to Rs 189.54 crore (Rs 1.89 billion), but fell much below market expectations of Rs 200-234 crore (Rs 2-2.34 billion).

The export turnover was marginally higher, by 0.1% to Rs 37.63 crore. Domestic turnover increased by 13.2% to Rs 180.27 crore (Rs 1.8 billion).

There has been a conscious decision by the company to exit low margin commodity products in bulk drugs, resulting in de-growth in sales of bulk drugs, both in the domestic and international markets. As a result, the share of formulations in the total sales increased to 70.5% in the quarter ended December 2002 from 64.3% in the corresponding previous quarter. The margins in formulation sales are invariably and quite significantly higher than in bulk drugs, and hence, the company's greater focus on formulation sales augurs well, say analysts.

However, a cause for concern is the surge in stocks of finished goods. The stock of finished stock and work in progress increased by Rs 9.68 crore in the quarter ended 31 December 2002 as against a reduction by Rs 4.13 crore in the corresponding previous quarter. The inventories are currently about 74 days stock as against about 58 day's stock in the corresponding previous quarter. The company is actively working on bringing back discipline in the markets, and hopes to regain the earlier stock turnover and aims at further improvements thereon.

SPIL is ranked 5th in the domestic formulations market. It has been consistently improving its market share from 2.78% in November 2001 to 2.92% in December 2002 (Source : ORG Retail Chemist Audit, November 2001, and December 2002).

Among the new products launched so far this year, the interesting ones are the asthma metered dose inhaler Fomtide (formoterol), the antipsychotic Qutipin (quetiapine), Surfact (surfactant for neonates), Rilutor (for movement disorder or amylotropic lateral sclerosis) and Rivamer (for alzeimers disease). Analysis of data for December 2002 MAT indicates that one of the company's speciality products, Susten(progesterone), lists among the 20 best performing new products launched in the last year.

The company has received the approval of shareholders for buy-back of equity from the open market through the stock exchange route. However, the company has capped the maximum limit to 2 million shares of Rs 10 each and the maximum price at Rs 750 per share. This would be further subject to a maximum limit of Rs 120 crore (Rs  1.2 billion) for the purpose of buyback. Nevertheless, the company is yet to start buying back, as it expects some favourable changes for the investor in the forthcoming budget.

SPIL is focussed on some niche therauptic segments in the pharma sector.

BSE Code: 524715