Specialty products segment key to Sun Pharma's growth prospects

Pricing pressure in US, lockdown may dent near-term prospects

The Sun Pharma stock gained 1.38 per cent on Thursday, even as the firm posted a weaker-than-expected performance for the March quarter. This was on account of the specialty products segment, which put up a better-than-expected show. This segment is vital to Sun Pharma’s growth prospects.

The firm refrained from providing growth guidance for FY21, considering the prevalent uncertainty. Though its US subsidiary Taro surpassed expectations in the quarter, pricing pressure in the overall portfolio is keeping analysts cautious.

Further, with some softening in revenue expected in the near term given the lockdown, analysts have cut their estimates. A ramp-up in specialty products could see growth revive, say analysts.

For instance, analysts at Motilal Oswal Financial Services have cut FY21/FY22 earnings estimates by 6.8 and 2.0 per cent, respectively, to factor in the slowdown. However, they remain positive due to the gradually improving outlook for the specialty portfolio, a robust drug pipeline in the US, and increasing market share in domestic formulations.

 

 

Global specialty sales during the quarter hit new a high of $125 million (up $8 million sequentially). The management attributed the improved performance to its dermatology product Ilumya.

While Ilumya achieved $94 million of sales during FY20, analysts at Kotak Institutional Equities estimate $145 million of sales in FY21, despite the slowdown, and $177 million in FY22.

Increasing sales of Ilumya come as a boost, as they can offset the softness in prescription for ophthalmology product Cequa during the lockdown. Cequa had gained good traction after its launch in the December quarter, but may see some decline because of lower prescriptions.

Analysts at Nomura say a stronger-than-estimated scale-up in Ilumya could also help negate the impact of higher costs on specialty products. This is also positive for overall margins, which are yet to see an expansion driven by the specialty segment.

The company’s US sales, which contribute 34 per cent to the top line, saw a $25-million jump in revenues sequentially, led by Taro and the specialty portfolio.

While Taro sales could still see volatility — given the pricing pressure continues — sustained growth in specialty drugs could, nevertheless, be a positive for the US market and overall sales. 

Kotak Institutional Equities’ analysts believe the Q4FY20 numbers provide improved visibility on the specialty rollout, and should provide significant comfort on prospects of its specialty portfolio.