Weak guidance, higher costs to weigh on Sun Pharma's FY26 outlook

Sun Pharma's FY26 revenue guidance disappoints Street expectations as higher specialty product costs in the US prompt brokerages to cut earnings estimates

Despite a healthy performance in the fourth quarter of financial year 2024-25 (Q4FY25), the stock of India’s largest listed pharma company, Sun Pharmaceutical Industries (Sun Pharma), was under pressure on Friday due to a muted guidance. The company has guided for a high single-digit revenue growth for FY26, which is below what the Street was working with. This coupled with higher expenses related to the launch of specialty products in the US market has prompted brokerages to cut their earnings estimates for FY26 by 4-8 per cent. The stock was the only loser in the Sensex, shedding 2 per cent, while the benchmark was up about 1 per cent in trade.

 

The Q4 show was broadly in line with the Street estimates. Revenues grew 8 per cent year-on-year (Y-o-Y) to just under ₹13,000 crore, with growth coming largely from the domestic formulation space that registered a growth of 14 per cent Y-o-Y. US generic and global specialty sales growth was lower. Specialty sales growth at 9 per cent was moderate and came after multiple quarters of double-digit growth. Brokerages, however, believe that it is seasonal as FY25 growth in the specialty segment was at 17 per cent. 

 

The focus will be on the growth momentum of the specialty business. While the sales of plaque psoriasis drug Ilumya moderated in Q4, the company expects it to keep growing in key markets going ahead. The company is set to launch hair-loss drug Leqselvi in the September quarter (Q2FY26). Brokerages expect the drug to fetch over $200 million over the next three-to-four years. Sun Pharma will also launch skin cancer drug Unloxcyt in FY26. The drug was incorporated into Sun’s portfolio after the acquisition of Checkpoint Therapeutics in March this year for an upfront payment of $355 million. 

 

For the domestic business, the Street expects the company to maintain its growth momentum. Analysts led by Alankar Garude of Kotak Research say: “After a strong FY25, which saw a growth of 13.7 per cent Y-o-Y, field force expansion, fortification of market-leading brands and new launches would drive an annual domestic sales growth of 10 per cent over FY25-FY28.”

 

The Street has two concerns regarding the FY26 guidance and outlook of Sun Pharma, and has accordingly cut its earnings estimates. Elara Securities believes that the overall FY26 guidance for top line growth at mid-high single digit is below expectation. Given its size, it is becoming a major hurdle to sustain double-digit growth as reflected in the guidance for FY26, it adds. Further, Sun Pharma has indicated that it will have $100 million additional spends in FY26 on US specialty product launches. This has led to a cut in its FY26 earnings by 8.5 per cent.

 

Kotak Research, too, has reduced its FY26 and FY27 earnings estimates by 4-6 per cent to account for slower sales growth and higher launch expenses for Leqselvi and Unloxcyt in FY26. Given the net cash balance of $3.1 billion as of March 2025, the brokerage expects Sun Pharma to remain more aggressive in chasing specialty assets, such as Antibe and Checkpoint, thereby providing an optionality. It has retained its “Add” rating on the stock.

 

Motilal Oswal Research expects the company’s efforts to not only expand offerings but also enhance marketing franchise in regulated markets for differentiated products. Further, it expects superior marketing to help the company take higher market share in branded domestic generics market. The brokerage hopes the company’s earnings would grow 17 per cent over FY25-FY27.