Sun Pharma Report

Morningstar Equity Analyst Report | Report as of 14 Aug 2014 | Page 1 of 9
Sun Pharmaceuticals Industries Ltd 524715 (XBOM)

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
QQ
812.80 INR
671.00 INR
1.21
0.31
1,683.44
Drug Manufacturers - Specialty & Generic

Standard
14 Aug 2014
14 Aug 2014
14 Aug 2014
14 Aug 2014
Morningstar Pillars
Analyst
Quantitative
Economic Moat
Valuation
Uncertainty
Financial Health
Narrow
QQ
High
Wide
Overvalued
Medium
Strong
Source: Morningstar Equity Research
Quantitative Valuation
524715
d IND
Undervalued
Price/Intrinsic Value
Price/Earnings
Forward P/E
Price/Cash Flow
Price/Free Cash Flow
Dividend Yield %
Fairly Valued
Overvalued
Current
5-Yr Avg
1.14
84.7
30.1
49.5
67.1
0.31
34.0
33.4
47.9
0.64
Sector Country
0.97
24.0
13.2
16.3
23.6
1.39
1.01
15.5
17.4
7.1
11.8
1.36
Source: Morningstar
Bulls Say
OSun's complex product portfolio, brand
recognition, and low-cost advantage allow the
company to generate very high margins.
ODoxil is a significant contributor to Sun's
profitability. Presently, Sun is the only company
supplying Doxil injections in the United States,
giving it extreme pricing power in a monopoly
market.
OSun's most recent U.S. acquisitions of DUSA
and URL have complementary product portfolios
and nonoverlapping ANDA filings.
Bears Say
OStringent regulations on pharmaceutical
manufacturing can make compliance a challenge.
One wrong move could disrupt Sun's business
overnight, just as it has for some of its Indian
competitors, such as Wockhardt.
OAlmost all of Sun's products are off-patent,
which means competitors can begin manufacturing
and selling substitute products in the market any
time.
OThe new drug pricing policy in India, which
allows the Indian government to regulate prices
of 652 commonly used drug formulations, will
modestly reduce Sun's India-based profits.
Stewardship
Sun Strengthens Its Complex Drug Capabilities as First-quarter Results

Remain on Track
Suruchi Jain, 19 May 2014
Analyst Note
Investment Thesis
We anticipate raising our fair value estimate for Sun

Pharmaceuticals as we update our model for recent
performance and integrate the acquisition of Ranbaxy into
our forecast. We also are maintaining our narrow moat
rating for the company.
We believe Sun's low-cost advantage, brand recognition

in emerging markets, and capability to manufacture
complex products will result in sustainable long-term
profitability. The firm has a narrow moat primarily due to
its low-cost advantage, which includes low manufacturing
and labor costs at its primary manufacturing base in India,
as well as a vertically integrated API segment that lowers
raw material procurement costs.
Sun earns industry-leading profitability by combining its
low-cost operations with unique drug manufacturing
capabilities where greater product complexity produces
more pricing power. Sun's ability to participate in niche,
limited-competition segments of the generic drug market
allows the company to earn profitability far above most
peers that typically compete in more commodified and
lower-margin segments of the market. In the U.S. generics
market, Sun has been able to build out a portfolio of
products, including injectable and topical drugs, where
fewer participating competitors generally leads to more
favorable pricing and profitability. Sun's focus on
emerging markets where generics can be marketed and
sold under a brand name for a higher price also enhances
profitability. Over the last year, Suns acquisitions of
specialized manufacturers in the U.S., including DUSA and
URL, should further fortify its complex drug capabilities
and help sustain growth and profitability over the long
term.
Although Sun has a few key products that are likely
significant contributors to the company's top and bottom
lines, management's ability to identify and enter key
limited-competition segments on a continuous basis
offers compelling opportunities for profitable growth. For
example, Sun is the only approved manufacturer for a
generic version of Doxil, an injection for ovarian cancer,
in the U.S., after manufacturing concerns at Johnson &
Johnson created a supply shortage. Until more supply hits
the market, Doxil will continue to be a highly profitable
drug launch for the company. Regardless, we think Sun's
ongoing participation in complex segments of the generic
drug market remains an attractive opportunity.
Suruchi Jain, 14 August 2014
Sun continues to post strong growth, which we expect will

continue despite some upcoming challenges on key
products. Suns consolidated earnings for its first fiscal
quarter were up 12%, after adjusting for the one-time
settlement for litigation related to generic Protonix last
year. Revenues were up 13% with the India formulations
business (up 17%) leading the charge, followed by U.S.
finished dosage sales (up 7%), and other regions (up 2%).
The companys international business continues to
contribute close to 75% of total sales, and we believe
regions outside India should continue to be the primary
driver of Sun's growth opportunities.
To further strengthen its ability to deliver difficult-to-manufacture,
complex drugs in the U.S., last month the company
announced the acquisition of a U.S.-based pharmaceutical
contract manufacturer, Pharmalucence, that has sterile
injectable production capacity in the U.S. While details on
price paid or the size of the target are not available, we
believe the company eventually should contribute to Suns
high-margin specialty drug capabilities. This confirms our
thesis that managements ability to identify and enter key
limited-competition segments offers compelling opportunities
for profitable growth. We laud such capital allocation
decisions, which have put the company ahead of its peers
for both complex manufacturing capabilities and superior
margins.
Economic Moat
Suruchi Jain 19 May 2014
Sun's cost advantage, complex drug capabilities, and

branded portfolio support its narrow economic moat, in
our opinion. These aspects combined should allow the
company to generate returns well in excess of its cost of
capital.
With India as its manufacturing base, Sun has the
advantage of low manufacturing, labor, and tax expenses.
Coupled with vertical integration of its API division, the
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Morningstar Equity Analyst Report |Page 2 of 9

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
QQ
812.80 INR
671.00 INR
1.21
0.31
1,683.44

Standard
14 Aug 2014
14 Aug 2014
14 Aug 2014
14 Aug 2014
Close Competitors
Currency (Mil)
Market Cap
TTM Sales
Operating Margin
TTM/PE
Perrigo Co PLC PRGO
USD
18,618
3,884
14.15
76.92
Hikma Pharmaceuticals PLC HIK
GBX
3,522
1,365
25.79
27.86
firm can produce drugs at a very low cost--a significant

advantage in the heavily commodified global generic drug
market where the lack of patent protection sustains high
levels of competition.
Sun has also built unique capabilities to identify and
manufacture niche, complex drugs, which face less
competition and higher profitability. Management
continuously invests in research and development
programs to develop solutions for future opportunities in
complex drug categories even if the opportunity size is
currently small. Management's multiyear efforts to
develop a generic version of Johnson and Johnson's
ovarian cancer drug Doxil, for example, has enabled the
company to possess the only currently approved version
in the U.S. market. Thanks to its stake in Taro, Sun also
enjoys a similar benefit participating in the limited
competition topical drug market.
In addition to its low cost and product focus advantages,
Sun's brand recognition in emerging markets, which form
close to 40% of Sun's fiscal 2013 revenue, helps uphold
pricing power. In most emerging markets, generic drugs
are promoted as branded products through a dedicated
salesforce to a fragmented customer base of pharmacies
and hospitals. Despite the lack of patent protection, these
branded generics can support higher pricing and
profitability over competitors thanks to brand recognition
and physician influence. Sun has access to more than
14,000 specialist doctors through its large salesforce of
more than 4,000 representatives.
Valuation
Suruchi Jain 08 April 2014
We are raising our fair value estimate for Sun

Pharmaceuticals by 25% to INR 671 per share, from INR
536 per share, which implies a forward fiscal-year 2014
price/adjusted earnings ratio of 30 times, an enterprise
value/adjusted EBITDA of 20 times, and a free cash flow
yield of 2.6%. We now forecast that the company's
revenue will grow at an average annualized rate of 21%
(versus our previous estimate of 19%) over the coming
five years through new product introductions, market
Stewardship
share gains in developed markets, and increased volumes

in developing markets as more patients can afford branded
drugs.
We're also more optimistic about Sun's future profitability.
We assume that average gross margin and operating
margin will be at 79% and 40%, respectively, over the next
five years--both about 300 basis points higher than our
previous estimates. Our improved outlook is primarily due
to longer estimates of limited competition in Sun's niche
high-profit drug opportunities (such as Doxil and Taro's
topical creams) and stronger contributions from new drug
launches. We imagine competition on Doxil and new
entrants in Taro's topical market will pressure Sun's
profitability, but new product approvals should help uphold
future margins. Furthermore, we believe the company will
continue spending 5.2% of revenue on research and
development in the coming five years as it looks to
maintain a profitable and growing drug portfolio.
We anticipate that Sun's tax rate will average 17% over
the next five years instead of a 9% average from 2009 to
2013 due to the reversal of a specific tax benefit by the
government of India. Despite increased taxation, we
believe Sun's double-digit revenue growth and strong
profitability will underpin strong net income growth of
24% over our explicit forecast. We estimate Sun's cost of
equity at 11%.
Risk
We believe Suns biggest challenge is the risk of changing

global regulations that affect drug manufacturing,
approval processes, product pricing, and taxation. For
example, the Indian government's May drug pricing policy
places a cap on the maximum price charged for numerous
common drugs in the Indian market. Even though this
particular change in regulation will have a relatively small
negative impact on Sun's profitability (by approximately
INR 0.5 billion over a 12-month period as estimated by
management), government regulation of drug pricing
remains a concern in many global pharmaceutical markets.
Another example is the recent reversal of a specific tax
benefit by the government of India, which has resulted in
an increased tax rate for Sun from the low-single digits to
the high teens.
The threat of competition from other low-cost rivals is also
a large risk for Sun, in our opinion. While Sun has built up

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
QQ
812.80 INR
671.00 INR
1.21
0.31
1,683.44

Standard
Stewardship
14 Aug 2014
14 Aug 2014
14 Aug 2014
14 Aug 2014
a very attractive business, it plays in the generic,

off-patent market where the barriers to entry are generally
low. Over time, other players may enter Sun's drug
markets and gradually erode the company's beneficial
pricing power and profitability.
Additionally, we believe the firm is exposed to significant
foreign currency fluctuations. As an exporter of
pharmaceutical products manufactured in India, Sun's
profitability could decline on adverse currency
movements.
Management
Suruchi Jain 12 December 2013
Overall, we believe Sun's stewardship of shareholders'

capital is Standard. Managing director Dilip Sanghvi, who
founded the company in 1982 in Gujarat, India, together
with his partner, Sudhir Valia, holds 63% of the firm's
equity. This large holding mostly aligns his interests with
those of other shareholders, in our assessment. Supported
by an independent board, Sun's experienced senior
managers have driven impressive growth and profitability
while building a future pipeline of profitable products.
Israel Makov, a former CEO of Teva Pharmacueticals, has
been Sun's chairman of the board since May 2012.
In its efforts to build a fast-growing and profitable
generics business in India, Sun has been a front-runner in
developing vertically integrated API manufacturing
capabilities and acquiring complementary capabilities in
niche product segments abroad. These offer high
profitability (such as Taro pharmaceutical's topical
products). We laud such capital allocation decisions,
which have put the company ahead of its peers for both
complex manufacturing capabilities and superior margins.
As acquisitions become a key driver of growth at the firm,
we believe Sun's management risks overpaying for
acquisitions, which could drag down shareholder returns
over the longer term. The firm's deficient disclosures--including
details on its development pipeline, and share of drugs
that are outsize contributors to revenue and profitability,
such as Doxil--prevent investors from adequately
monitoring the company's operations and detecting
potential opportunities or risks, in our view.

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
QQ
812.80 INR
671.00 INR
1.21
0.31
1,683.44

Standard
14 Aug 2014
14 Aug 2014
14 Aug 2014
14 Aug 2014
Analyst Notes Archive

Sun Strengthens Its Complex Drug Capabilities as
First-quarter Results Remain on Track
Suruchi Jain 14 August 2014
We anticipate raising our fair value estimate for Sun

Pharmaceuticals as we update our model for recent
performance and integrate the acquisition of Ranbaxy into
our forecast. We also are maintaining our narrow moat
rating for the company.
Sun continues to post strong growth, which we expect
will continue despite some upcoming challenges on key
products. Suns consolidated earnings for its first fiscal
quarter were up 12%, after adjusting for the one-time
settlement for litigation related to generic Protonix last
year. Revenues were up 13% with the India formulations
business (up 17%) leading the charge, followed by U.S.
finished dosage sales (up 7%), and other regions (up 2%).
The companys international business continues to
contribute close to 75% of total sales, and we believe
regions outside India should continue to be the primary
driver of Sun's growth opportunities.
To further strengthen its ability to deliver difficult-to-manufacture,
complex drugs in the U.S., last month the company
announced the acquisition of a U.S.-based pharmaceutical
contract manufacturer, Pharmalucence, that has sterile
injectable production capacity in the U.S. While details
on price paid or the size of the target are not available,
we believe the company eventually should contribute to
Suns high-margin specialty drug capabilities. This
confirms our thesis that managements ability to identify
and enter key limited-competition segments offers
compelling opportunities for profitable growth. We laud
such capital allocation decisions, which have put the
company ahead of its peers for both complex
manufacturing capabilities and superior margins.
Sun's Unsustainably High Margins Ahead of Our
Expectations
Sun Pharmaceuticals' consolidated revenue for fiscal

2014 grew 45%, but after adjusting for currency effects
(as the dollar/rupee rate moved to an average of INR 60
from INR 54 in fiscal 2013), the growth at constant
currency was 31%, close to our 30% full-year estimate.
Sun's underlying profitability exceeded our expectations,
Stewardship
however, as the firm continues to benefit from price

increases. With a nearly 120-basis-point better-than-expected
rise in gross margin to 82.7%, earnings per share reached
INR 27.60, ahead of our INR 22.78 estimate after adjusting
for the one-time items. We may raise our fair value
estimate of INR 671 per share after taking into account
the possibility of higher-than-anticipated profitability, but
we remain concerned about possible margin pressure from
internal regulatory issues and the upcoming integration
of Ranbaxy.
Sun's U.S. business continued to lead the charge with 43%
growth, as currency benefits and pricing power in many
core products aided this performance. Sun's ability to raise
prices confirms our narrow moat rating on the stock and
is reflected in Taro's 13% revenue growth and
260-basis-point gross margin expansion despite a slight
decline in sales volume. Sun's other segments also posted
strong results, with India, other international markets, and
bulk API sales growing 17%, 13%, and 6% respectively.
During the conference call, management confirmed our
view that margins are unsustainable at current levels as
competitive products will enter the market in subsequent
years to slow Sun's market share advances and pricing
power. This trend also applies to its major oncology
product, Doxil, sold in the U.S. Johnson & Johnson has
batch approval for Doxil, and supply is coming back to
disrupt the near monopoly enjoyed by Sun. Management
expects slower constant currency revenue growth in the
coming year of 13%-15%.
Sun Acquires Struggling Ranbaxy at Half the Price
Daichii Paid for a Controlling Stake in 2008
Suruchi Jain 07 April 2014
Sun Pharmaceuticals announced it will acquire the ailing

Indian pharmaceutical company Ranbaxy in an all-equity
transaction. Each Ranbaxy shareholder will receive 0.8
shares of Sun, valuing the company at $4 billion or 2.2
times its 2013 revenue, which is roughly half the price
Daichii Sankyo paid to acquire a 64% share of the firm in
2008. At first blush, it looks like Sun got a good deal, but
we think Sun's management will face considerable
challenges to rectify a long history of quality control and
regulatory problems plaguing Ranbaxy's recent
performance. Assuming Sun can successfully turnaround
Ranbaxy's business, we may modestly boost our fair value
estimate for Sun thanks to the complementary OTC and
specialty drugs gained from Ranbaxy's portfolio combined

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
QQ
812.80 INR
671.00 INR
1.21
0.31
1,683.44

Standard
14 Aug 2014
14 Aug 2014
14 Aug 2014
14 Aug 2014
with potential cost synergies. Management pegs total

synergies at nearly $250 million within three years. We
don't foresee any change to our narrow moat rating for
Sun.
Ranbaxy has suffered several blows from restrictions
placed by the U.S. Food and Drug Administration due to
poor quality controls and manufacturing concerns, which
Sun believes it can rectify. In 2013, Ranbaxy posted a
revenue decline of 12% and a net loss as operating costs
have outpaced revenue growth. Last month, Ranbaxy also
received a subpoena from U.S. authorities seeking
information on its API manufacturing facility in Toansa.
Despite these mounting problems, we are fairly optimistic
that Sun can eventually turnaround this business given its
past of successfully integrating acquisitions.
Stewardship
months were up 60%, after adjusting for the one-time INR

32 billion ($550 billion) settlement with Pfizer over generic
Protonix. This is ahead of our recently revised estimate of
43% growth for the full year. This is primarily due to
higher-than-anticipated gross margin realization as the
company has been able to increase prices on some
limited-competition products, especially in the Taro
portfolio, where net sales grew 13% over nine months
while volume remained flat, and gross margins expanded
by 250 basis points to 76.7%. For the consolidated entity,
gross margins were 82.5% or 100 basis points ahead of
our full-year estimates. The firm continues to anticipate
competition to step up within certain product segments,
and as such we are keeping our full-year adjusted earnings
estimate of INR 22.78 per share unchanged as we continue
to watch these developments for the remaining three
months of the fiscal year.
While the deal awaits regulatory and shareholder

approval, we don't see any major hurdles for the deal to
conclude by December 2014--the timeline targeted by
Sun's management. The combined entity will possess the
most market share in the Indian generic pharmaceutical
space, and make it the fifth-largest generic drug
manufacturer in the world behind Teva, Sandoz, Actavis,
and Mylan.
Sun Raises 2014 Revenue Growth Forecast to 29%,
In Line With Our 30% Estimate
Suruchi Jain 18 February 2014
Sun Pharma's revenue for the first nine months of fiscal

2014 grew an impressive 46%. The firm's U.S. formulation
business, which climbed 52%, took the lead as Taro
continues to enjoy pricing power in its over-the-counter
topical products. The other segments grew relatively
slower, with India formulations up 16% after adjusting for
a low base, international formulations up 17%, and bulk
API sales down 1%. Management revised its full-year
sales growth outlook to 29%, up from 22%, in line with
our estimate of 30%. Our forecast also takes higher tax
guidance of 15% into account, on account of the reversal
of a specific tax benefits by the government of India. Our
fair value estimate of INR 671 is unchanged, and we
believe the stock is modestly undervalued. Sun's unique
drug capabilities in complex pharmaceutical segments
should allow the company to continually generate high
returns on capital exceeding its cost of capital, justifying
our narrow economic moat rating.
The Indian pharmaceutical company's earnings over nine
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6 of1 9of 1
Quantitative Equity Report | Release Date: 14 August 2014 | Reporting Currency: INR | Trading Currency: INR
Sun Pharmaceuticals Industries Ltd 524715

Last Close
Quantitative Fair Value Estimate
Market Cap (Bil)
Sector
814.05
700.65
1,657.4
d Healthcare
Sun Pharmaceuticals Industries Ltd manufactures and markets

a basket of pharmaceutical formulations as branded generics,
as well as generics in India, US and several other markets.
Industry
Country of Domicile
Drug Manufacturers - Specialty IND India
& Generic
Price Versus Quantitative Fair Value

2010
2011
2012
2013
2014
2015
Sales/Share
Forecast Range
Forcasted Price
Dividend
Split
1,270
Quantitative Scores
1,016
Scores
Momentum:
Standard Deviation: 25.06
All Rel Sector Rel Country
Quantitative Moat
Wide
Valuation
Overvalued
Quantitative Uncertainty Medium
Financial Health
Strong
100
7
98
82
99
6
97
82
762
100
6
100
92
Quantitative Fair Value Estimate

508
Total Return
475.60
52-Wk
196.03
5-Yr
816.00
254
524715
d
Undervalued
Fairly Valued
Overvalued
Valuation
Sector
Median
Country
Median
34.0
33.4
47.9
0.64
5.5
9.0
0.97
24.0
13.2
16.3
23.6
1.39
3.2
3.4
1.01
15.5
17.4
7.1
11.8
1.36
0.9
0.7
Current 5-Yr Avg
Sector
Median
Country
Median
12.3
6.6
0.3
9.9
3.7
6.2
Current 5-Yr Avg
Price/Quant Fair Value

Price/Earnings
Forward P/E
Price/Cash Flow
Price/Free Cash Flow
Dividend Yield %
Price/Book
Price/Sales
1.14
84.7
30.1
49.5
67.1
0.31
9.0
12.2
Profitability
Return on Equity %
Return on Assets %
Revenue/Employee (Mil)
10.6
7.7
13.0
21.9
18.5
Score
100
Quantitative Moat
80
60
40
20
0
2007
2008
2009
2010
2011
2012
2013
Financial Health
Current 5-Yr Avg
Distance to Default
Solvency Score
Assets/Equity
Long-Term Debt/Equity
2014
Sector
Median
Country
Median
0.6
480.1
1.4
0.1
0.6
559.0
1.9
0.2
0.7
1.3
0.0
1.2
0.0
1-Year
3-Year
5-Year
10-Year
40.9
28.8
12.5
21.4
24.1
48.4
43.7
45.0
30.3
15.6
27.5
50.9
27.5
21.9
15.0
26.3
6.4
16.2
Growth Per Share

Revenue %
Operating Income %
Earnings %
Dividends %
Book Value %
Stock Total Return %
1,190.00
IND
-66.9
-79.8
3.2
19.4
48.9
30.6
55.1
36.8
43.4
39.7
0.57
37.2
12.9
0.70
28.3
9.0
0.58
27.0
7.2
0.44
60.2
8.6
0.31
84.7
12.2
Total Return %
+/ Market (Morningstar World
Index)
Dividend Yield %
Price/Earnings
Price/Revenue
Undervalued
Fairly Valued
Overvalued
Monthly Volume (Thousand Shares)

Liquidity: High
610
Financials (Fiscal Year in Mil)

Revenue
% Change
2009
2010
2011
2012
2013
TTM
42,723
27.3
39,040
-8.6
57,214
46.6
80,195
40.2
112,999
40.9
136,618
20.9
19,492
21.9
18,780
14,148
-27.4
13,470
20,358
43.9
18,161
30,000
47.4
25,873
43,125
43.7
29,831
33,739
-21.8
19,541
Operating Income
% Change
Net Income
21,651
-6,101
15,550
36.4
7,933
-2,841
5,091
13.0
23,894
-4,454
19,440
34.0
23,482
-7,129
16,353
20.4
33,629
-8,786
24,843
22.0
33,629
-8,786
24,843
18.2
Operating Cash Flow

Capital Spending
Free Cash Flow
% Sales
8.78
22.3
7.51
6.52
-25.7
2.46
8.75
34.2
9.39
12.50
42.9
7.90
14.40
15.2
11.99
9.40
-34.7
11.95
EPS
% Change
Free Cash Flow/Share
1.05
34.97
2,071
1.38
38.73
2,071
1.38
48.57
2,071
1.75
64.68
2,071
2.13
80.27
2,071
2.50
89.08
2,071
Dividends/Share
Book Value/Share
Shares Outstanding (Mil)
29.3
25.5
42.6
0.60
1.1
17.7
15.6
34.6
0.45
1.1
19.8
17.0
31.7
0.54
1.2
21.9
18.1
32.3
0.56
1.2
19.9
16.1
26.4
0.61
1.3
10.6
7.7
14.3
0.54
1.4
Profitability
Return on Equity %
Return on Assets %
Net Margin %
Asset Turnover
Financial Leverage
80.0
45.6
1,789
71.9
36.2
1,712
74.5
35.6
4,256
73.4
37.4
1,554
79.6
38.2
1,153
81.9
24.7
1,308
Gross Margin %
Operating Margin %
Long-Term Debt
72,420
3.1
80,221
2.5
103,305
2.9
133,278
2.9
166,248
3.4
184,504
2.4
Quarterly Revenue & EPS

Revenue (Bil)
Jun
2014
34.8
2013
26.6
2012
2011
Earnings Per Share

2014
-3.10
2013
1.90
2012
2011
Total Equity
Fixed Asset Turns
Revenue Growth Year On Year %

Sep
42.1
26.6
Dec
28.7
21.5
Mar
30.9
23.4
Total
113.0
80.2
57.2
6.60
1.50
4.25
3.25
4.76
3.96
14.40
12.50
8.75
57.9
33.3
32.1
31.0
13.0
2012
2013
2014 Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information
contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution
is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.
2014
Morningstar
Morningstar Equity
Equity Analyst
Analyst Report
Report |Page 7 of 9
Morningstar Equity & Credit Research Methodology

Fundamental Analysis
At Morningstar, we believe buying shares of superior
businesses at a discount and allowing them to compound over time is the surest way to create wealth in
the stock market. The long-term fundamentals of businesses, such as cash flow, competition, economic cycles, and stewardship, are our primary focus. Occasionally, this approach causes our recommendations to
appear out of step with the market, but willingness to
be contrarian is an important source of outperformance and a benefit of Morningstars independence.
Our analysts conduct primary research to inform our
views on each firms moat, fair value and uncertainty.
Fundamental Economic
Fair Value
Moat Rating Estimate
Analysis
Uncertainty
Assessment
QQQQQ
QQQQ
QQQ
QQ
Q
Star
Rating
Economic Moat
The economic moat concept is a cornerstone of Morningstars investment philosophy and is used to distinguish high-quality companies with sustainable competitive advantages. An economic moat is a structural
feature that allows a firm to sustain excess returns
over a long period of time. Without a moat, a companys profits are more susceptible to competition. Companies with narrow moats are likely to achieve normalized excess returns beyond 10 years while wide-moat
companies are likely to sustain excess returns beyond
20 years. The longer a firm generates economic profits,
the higher its intrinsic value. We believe lower-quality
no-moat companies will see their returns gravitate to-
ward the firms cost of capital more quickly than companies with moats will. We have identified five sources of
economic moats: intangible assets, switching costs,
network effect, cost advantage, and efficient scale.
Fair Value Estimate

Our analyst-driven fair value estimate is based primarily on Morningstars proprietary three-stage discounted
cash flow model. We also use a variety of supplementary fundamental methods to triangulate a companys
worth, such as sum-of-the-parts, multiples, and yields,
among others. Were looking well beyond next quarter
to determine the cash-generating ability of a companys
assets because we believe the market price of a security will migrate toward the firms intrinsic value over
time. Economic moats are not only an important sorting
mechanism for quality in our framework, but the designation also directly contributes to our estimate of a
companys intrinsic value through sustained excess returns on invested capital.
Uncertainty Rating
The Morningstar Uncertainty Rating demonstrates our
assessment of a firms cash flow predictability, or valuation risk. From this rating, we determine appropriate
margins of safety: The higher the uncertainty, the wider
the margin of safety around our fair value estimate before our recommendations are triggered. Our uncertainty ratings are low, medium, high, very high, and extreme. With each uncertainty rating is a corresponding
set of price/fair value ratios that drive our recommendations: Lower price/fair value ratios (<1.0) lead to positive recommendations, while higher price/fair value
Economic Moat
C O M PE T I T I V E F O R C E S
WIDE
Moat Sources:
Intangible
Assets
NARROW
NONE
Switching
Costs
COMPANY PROFITABILITY
Network
Effect
Cost
Advantage
Efficient
Scale
Morningstar
Morningstar Equity
Equity Analyst
Analyst Report
Report |Page 8 of 9
Morningstar Equity & Credit Research Methodology

ratios (>1.0) lead to negative recommendations. In very
rare cases, the fair value estimate for a firm is so unpredictable that a margin of safety cannot be properly
estimated. For these firms, we use a rating of extreme.
Very high and extreme uncertainty companies tend to
have higher risk and volatility.
Quantitative Economic Moat: The quantitative moat

rating is analogous to Morningstars analyst-driven
economic moat rating in that both are meant to describe the strength of a firms competitive position.
Financial Health: Financial health is based on Morningstars proprietary Distance to Default calculation.
Credit Rating
The Morningstar Corporate Credit Rating measures the
ability of a firm to satisfy its debt and debtlike obligations. The higher the rating, the less likely we think the
company is to default on these obligations.
Quantitatively Driven Valuations

To complement our analysts work, we produce Quantitative Ratings for a much larger universe of companies.
These ratings are generated by statistical models that
are meant to divine the relationships between Morningstars analyst-driven ratings and key financial data
points. Consequently, our quantitative ratings are directly analogous to our analyst-driven ratings.
Quantitative Fair Value Estimate (QFVE): The QFVE is
analogous to Morningstars fair value estimate for
stocks. It represents the per-share value of the equity
of a company. The QFVE is displayed in the same currency as the companys last close price.
Valuation: The valuation is based on the ratio of a companys quantitative fair value estimate to its last close price.
Quantitative Uncertainty: This rating describes our level of uncertainty about the accuracy of our quantitative
fair value estimate. In this way it is analogous to Morningstars fair value uncertainty ratings.
Understanding Differences Between Analyst

and Quantitative Valuations
If our analyst-driven ratings did not sometimes differ
from our quantitative ratings, there would be little value in producing both. Differences occur because our
quantitative ratings are essentially a highly sophisticated analysis of the analyst-driven ratings of comparable companies. If a company is unique and has few
comparable companies, the quantitative model will
have more trouble assigning correct ratings, while an
analyst will have an easier time recognizing the true
characteristics of the company. On the other hand, the
quantitative models incorporate new data efficiently
and consistently. Empirically, we find quantitative ratings and analyst-driven ratings to be equally powerful
predictors of future performance. When the analystdriven rating and the quantitative rating agree, we find
the ratings to be much more predictive than when they
differ. In this way, they provide an excellent second
opinion for each other. When the ratings differ, it may
be wise to follow the analysts rating for a truly unique
company with its own special situation, and follow the
quantitative rating when a company has several reasonable comparable companies and relevant information is flowing at a rapid pace.
Uncertainty Rating
Price/Fair Value
2.00
Q
1.75
175%
1.50
1.25
1.00
0.75
155%
125%
95%
QQ
135%
80%
125%
115%
110%
105%
QQQ
90%
85%
80%
70%
QQQQ
60%
0.50
50%
QQQQQ
0.25
Low
Uncertainty Rating
Medium
High
Very High

Morningstar Rating
Last Price
Fair Value Estimate
Price/Fair Value
Dividend Yield %
Market Cap (Bil)
Industry
QQ
812.80 INR
671.00 INR
1.21
0.31
1,683.44

Standard
Stewardship
14 Aug 2014
14 Aug 2014
14 Aug 2014
14 Aug 2014
2014 Morningstar. All Rights Reserved. Unless stated

otherwise, this report was prepared by the person(s)
noted in their capacity as Equity Analysts employed by
Morningstar, Inc., including its global affiliates. It has
not been made available to the issuer prior to
publication.
The Morningstar Rating for stocks identifies stocks
trading at a discount or premium to their intrinsic value.
Five-star stocks sell for the biggest risk-adjusted
discount whereas one-star stocks trade at premiums to
their intrinsic value. Based on a fundamentally focused
methodology and a robust, standardized set of
procedures and core valuation tools used by
Morningstars Equity Analysts, four key components
drive the Morningstar Rating: 1. Assessment of the
firms economic moat, 2. Estimate of the stocks fair
value, 3. Uncertainty around that fair value estimate
and 4. Current market price. Further information on
Morningstars methodology is available from
http://global.morningstar.com/equitydisclosures.
It has not been determined in advance whether and in
what intervals this document will be updated. No
material interests are held by Morningstar or the Equity
Analyst in the financial products that are the subject of
the research reports or the product issuer. Regarding
Morningstars conflicts of interest: 1) Equity Analysts
are required to comply with the CFA Institutes Code of

Ethics and Standards of Professional Conduct and 2)
Equity Analysts compensation is derived from
Morningstars overall earning and consists of salary,
bonus and in some cases restricted stock; however
Equity Analysts are neither allowed to participate
directly or try to influence Morningstars investment
management groups business arrangements nor allow
employees from the investment management group to
participate or influence the analysis or opinion prepared
by them. Further information on Morningstars conflict
of interest policies is available from http://global.mor
ningstar.com/equitydisclosures.
Unless otherwise provided in a separate agreement,
you may use this report only in the country in which its
original distributor is based. The original distributor of
this document is Morningstar Inc.. The information
contained herein is not represented or warranted to be
accurate, correct, complete, or timely. This report is for
information purposes only, and should not be
considered a solicitation to buy or sell any security.
Redistribution is prohibited without written permission.
written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869.

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Morningstar Equity Analyst Report | Report as of 14 Aug 2014 | Page 1 of 9

Sun Pharmaceuticals Industries Ltd 524715 (XBOM)

Fair Value Estimate

Market Cap (Bil)

Drug Manufacturers - Specialty & Generic

Source: Morningstar Equity Research

Sun Strengthens Its Complex Drug Capabilities as First-quarter Results

We anticipate raising our fair value estimate for Sun

We believe Sun's low-cost advantage, brand recognition

Sun continues to post strong growth, which we expect will

Sun's cost advantage, complex drug capabilities, and

Morningstar Equity Analyst Report |Page 2 of 9

Sun Pharmaceuticals Industries Ltd 524715 (XBOM)

Fair Value Estimate

Market Cap (Bil)

Drug Manufacturers - Specialty & Generic

Perrigo Co PLC PRGO

Hikma Pharmaceuticals PLC HIK

firm can produce drugs at a very low cost--a significant

We are raising our fair value estimate for Sun

share gains in developed markets, and increased volumes

We believe Suns biggest challenge is the risk of changing

Morningstar Equity Analyst Report |Page 3 of 9

Sun Pharmaceuticals Industries Ltd 524715 (XBOM)

Fair Value Estimate

Market Cap (Bil)

Drug Manufacturers - Specialty & Generic

a very attractive business, it plays in the generic,

Overall, we believe Sun's stewardship of shareholders'

Morningstar Equity Analyst Report |Page 4 of 9

Sun Pharmaceuticals Industries Ltd 524715 (XBOM)

Fair Value Estimate

Market Cap (Bil)

Drug Manufacturers - Specialty & Generic

Analyst Notes Archive

We anticipate raising our fair value estimate for Sun

Sun Pharmaceuticals' consolidated revenue for fiscal

however, as the firm continues to benefit from price

Sun Pharmaceuticals announced it will acquire the ailing

Morningstar Equity Analyst Report |Page 5 of 9

Sun Pharmaceuticals Industries Ltd 524715 (XBOM)

Fair Value Estimate

Market Cap (Bil)

Drug Manufacturers - Specialty & Generic

with potential cost synergies. Management pegs total

months were up 60%, after adjusting for the one-time INR

While the deal awaits regulatory and shareholder

Sun Pharma's revenue for the first nine months of fiscal

Sun Pharmaceuticals Industries Ltd 524715

Quantitative Fair Value Estimate

Market Cap (Bil)

Sun Pharmaceuticals Industries Ltd manufactures and markets

Price Versus Quantitative Fair Value

Standard Deviation: 25.06

All Rel Sector Rel Country

Quantitative Fair Value Estimate

Current 5-Yr Avg

Current 5-Yr Avg

Price/Quant Fair Value

Growth Per Share

Monthly Volume (Thousand Shares)

Financials (Fiscal Year in Mil)

Operating Cash Flow

Quarterly Revenue & EPS