Sun Pharma hits six year-high; gains 13% in last eight days on strong Q3

In Q3, the company has witnessed stronger growth than anticipated in the US, Emerging Markets and RoW.

Shares of Sun Pharmaceutical Industries were up 2 per cent at Rs 900.95, hitting an over six-year high on the BSE after a good operational performance in December quarter (Q3FY22). The stock of the drug maker was quoting higher for the eighth straight trading day having rallied 13 per cent during the period. It was trading at its highest level since October 2015.

In Q3FY22, Sun Pharma’s earnings before interest tax and depreciation and amortization (EBITDA) margins declined lower-than-expected by 80 bps year-on-year (YoY) at 26.4 per cent on the back of marginal dip in gross margins and higher other expenditure.

The country’s largest pharma player posted an 11 per cent YoY rise in consolidated revenues to Rs 9,814.2 crore in Q3FY22, riding on strong growth in its key markets – India and the US. The net profit grew 11.1 per cent YoY at Rs 2,058.8 crore. The board also declared an interim dividend of Rs 7 per share.

Global specialty sales grew by 21 per cent YoY to US$183 million, driven by Ilumya, Cequa, Levulan and Absorica. This specialty growth had some seasonal effects due to high demand for Derma products in winter. Ilumya sales in 9MFY22 were comfortably more than in FY21.

The management said the company achieved a sustained momentum and good growth across businesses and despite rising costs, achieved higher profitability. India business continues to grow faster than market, leading to increase in market share. Global specialty business for the first nine months has already crossed previous full-year revenues.

"The company has witnessed stronger growth than anticipated in the US, Emerging Markets and RoW. Also, the company has outperformed on net income growth front in Q3FY22. Its global specialty products revenue growth has been picking up pace and over 50.0 per cent of its revenue is coming from India and Emerging Markets. This indicates that Sun Pharma is largely de-risked from the hyper competitive market of the US," said KRChoksey Shares and Securities.

The brokerage firm has upgraded the recommendation on the stock to BUY from ACCUMULATE with a target price of Rs 1,074 per share.

Brokerage ICICI Securities maintains ‘buy’ rating on Sun Pharma with a target price of Rs 1,075 on the back of consistent traction on the specialty front, linear growth in India formulations besides calibrated approach in generics.

Higher contribution from specialty & strong domestic franchise is likely to change the product mix towards more remunerative businesses by FY23. The company has embarked on a strategy to in-license latest generation patent protected products from various innovators for India market, are among key triggers for future price performance, it said. 

It added that in US, Sun Pharma is diversifying into specialty products like Ilumya, Levulan, BromSite, Cequa, Xelpros, Odomzo, Yonsa, Winlevi, etc. The launch momentum in India (25 launches in Q3), pick-up in demand for chronic and sub-chronic segment backed by high PCPM is likely to sustain growth.