Sun Pharma gains 4% on earnings optimism, stock scales a 5-year high

The better traction in the specialty segment and improvement in domestic business to drive the margin expansion in Q3.

Shares of Sun Pharmaceutical Industries hit an over five-year high at Rs 871, up 4 per cent on the BSE in Thursday’s intra-day trade on expectation of good earnings growth. The stock of drug maker was trading at its highest level since March 2016. It surpassed its previous high of Rs 860 touched on January 3, 2022.

In the past one month, Sun Pharma has outperformed the market, by surging 14 per cent, on expectations that complex drug approvals in the US, outperformance in the domestic formulations, and incremental gains from anti-Covid launches in India will boost its top line. In comparison, the S&P BSE Sensex was up 4.8 per cent during the same period.

Pick up in the specialty business, improvement in the domestic sales along with traction in other geographies would be the key growth drivers for Sun Pharma. The better traction in the specialty segment and improvement in domestic business to drive the margin expansion, while tracking the operating performance the earnings are expected to stage a strong growth, the brokerage firm Sharekhan said.

According to ICICI Securities, in October-December quarter (Q3FY22), Sun Pharma’s revenues are likely to grow 9.3 per cent year on year (yoy) to Rs 9,656.9 crore, mainly due to 12 per cent yoy growth in domestic formulations to Rs 3,083.1 crore.

Taro's sales are expected to grow around 6.8 per cent yoy to Rs 1,103.6 crore while US (ex-Taro) is likely to grow 4.2 per cent YoY to Rs 1,799.9 crore. EBITDA margins are expected to decline 73 bps to 26.5 per cent while EBITDA is expected to grow 6.4 per cent YoY to Rs 2,559.1 crore. Adjusted PAT is likely to decline 5.6 per cent YoY to Rs 1,749 crore, the brokerage firm said in result preview.

For Sun Pharma, we expect the continued ramp-up of specialty to drive US revenue growth, which would be partially offset by price erosion in the generics business. While the Flu season seems to be picking up in the US, its contribution will only be visible in Q4 due to the timing. Sun Pharma is expected to post the highest growth qoq within our coverage companies, driven by specialty ramp-up and CGT exclusivity for AmBisome, Emkay Global Financial Services said.

 “We estimate overall top-line growth of around 8 per cent yoy and flat quarter on quarter (qoq). We expect US specialty revenue of ~US$141mn, driven by US$6mn growth in Ilumya (Rx up 10 per cent qoq) and modest improvement in Cequa, Odomzo, Bromsite, Levulan, and Winlevi, partially offset by declines in Absorica and Absorica LD (Rx down 20 per cent and 10 per cent, respectively). Taro revenue should remain flat qoq. We expect a significant EBITDA margin compression qoq due to the absence of Covid-related tailwinds, higher input costs and Winlevi launch expenses,” the brokerage firm said in sector update.