Analysts offer mixed views on Sun Pharma's near term growth; revise target

Shares of Sun Pharmaceuticals, the biggest pharmaceutical company of India fell 1.71 per cent at Rs 1870 per share on the BSE after brokerages offered mixed reviews post Q2

Shares of Sun Pharmaceuticals, the biggest pharmaceutical company of India fell 1.71 per cent at Rs 1870 per share on the BSE in Tuesday's intraday deals after brokerages offered mixed reviews on its near term growth.  The company, however, delivered a stellar show in its second quarter for the financial year 2024-25 (Q2FY25), beating brokerages estimates.  

  At 09:54 AM; the shares of Sun Pharma were trading 1.36 per cent lower at Rs 1876.70 a piece. By comparison, the BSE Sensex was down 0.47 per cent at 79,631 level.  

According to analysts, the pharma major surpassed their expectations on profit after tax as well as on earnings before interest, tax, depreciation and amortisation front. The beat, they said was mainly driven by lower R&D spend and strong gross margin improvement.  

The company’s US generic business growth was led by Revlimid sales, excluding which, the base business grew Y-o-Y with launch of two products but showed a marginal decline Q-o-Q, analysts at HDFC Securities noted. The India growth was led by strong volume and 20 new launches in the first half of FY25. The rest of the world's (RoW) growth was muted due to price cuts in Japan’s generic market, they said.  

The company’s global specialty sales grew 19 per cent Y-o-Y as underlying prescription trends remained strong. The pharmaceutical major has also cut the R&D investment guidance by 200 basis points for FY25 to 7-8 per cent in FY25 (8-10 per cent earlier), which bodes quite well for near term earnings, analysts said. Accordingly, the domestic brokerage firm Nuvama has upgraded Sun Pharma’s FY25 earnings by 5 per cent.   Mixed outlook

 

Despite the earning upgrade, analysts said, the cut in the R&D spend of speciality business may create near term growth growth challenges as the launch of the company’s new long-term growth driver, ‘Leqselvi’ remains in limbo. ‘Leqselvi’ treats adults with severe alopecia areata. 

“Considering the launch delay in Leqselvi and other assets still chasing regulatory approval, this may cause a growth challenge in the specialty business till it secures new approval/label expansion. Considering this, we retain ‘HOLD’ rating with a target price of Rs 1,815 (32x FY27E EPS, earlier TP Rs 1636),” Shrikant Akolkar, Aashita Jain, Gaurav Lakhotia of Nuvama said in a report. 

 

Apart from those at Nuvama, other brokerages are still bullish on Sun Pharma, with in-licensed assets like Fibromun from Philogen in the US further bolstering the specialty pipeline of the company. Fibromun is indicated for soft tissue sarcoma and glioblastoma.

 

Analysts at JM Financial expect more such M&A deals as the cash pile rises. “Sun's market beating domestic growth, specialty-focus and improving M&A appetite will continue to drive re-rating. Accordingly, we maintain 'Buy' with a revised Sep'25 target price of Rs 2,094,” JM Financial analysts said. 

 

The company’s management expects its global as well as US specialty business to continue growing, led by a scale-up in key products and expects India to see steady growth.

 

Those at HDFC Securities predict a scaleup in specialty business with traction in drugs such as Ilumya, Winlevi, Cequa, and the potential launch of Deuruxolitinib, steady US generics, and new launches, in-licensing in India. This they said will drive growth and lead to a steady improvement in the margin. HDFC Securities has revised the company’s target price with a ‘Buy’ rating from Rs 1,800 earlier to Rs 2,180 valuing it at 36 times its Q3FY27 EPS. 

 

Global brokerages were mixed in their calls for Sun Pharma with Jefferies maintaining ‘Buy’ on the company and raising the target price to Rs 2,150, while Goldman Sachs retaining its ‘Sell’ rating for the stock with a raised target of Rs 1600. 

 

Financial print

Sun Pharmaceutical Industries reported a consolidated profit after tax (PAT) of Rs 3,040.3 crore for Q2FY25, marking a 28 per cent year-on-year (YoY) increase. Revenue from operations grew by 10.5 per cent to Rs 13,264.2 crore, driven by market share gains and strong performance in domestic and emerging markets. 

 

Sequentially, revenue rose by 5.09 per cent, and PAT increased by 7.2 per cent. Earnings before interest, tax, depreciation, and amortisation (Ebitda) surged by 23.6 per cent YoY to Rs 4,292.96 crore. 

 

India formulation sales reached Rs 4,265.2 crore, up 11 per cent YoY, accounting for about 32 per cent of total sales. In the US, formulation sales grew 20.3 per cent YoY to $517 million, representing 33 per cent of total consolidated sales. The company also launched 14 new products in India during the quarter.