Sun Pharma stock concerns may be overstated as domestic growth holds

Analysts say Sun Pharma's stock concerns are overdone, with strong domestic growth, broad-based chronic portfolio gains and resilient Q1FY26 earnings offsetting US market worries

In Q1FY26, concerns for the pharma industry revolved around jitters about the US. This came even as the India business growth of major players was steady at 9.7 per cent year-on-year (Y-o-Y), led by price hikes and better volumes.

 

The dip in the US was on account of pricing pressure in Revlimid and also fears about future tariff imposts.

 

Companies are, however, confident they can pass on cost escalation in case of US tariff on generics to customers.

 

Among the top corporates, Sun Pharma grew the fastest in Aug-2025 with 13.7 per cent Y-o-Y growth in the domestic market. Sun Pharma has been consistently outpacing the domestic market. However, there have been concerns about the sustainability of Sun’s domestic performance and also concerns around Sun’s specialty investments in FY26 and its new specialty launches.

 

Notably, while domestic formulations are one-third of the overall top line, the business accounts for 55 per cent of Sun’s overall earnings before interest, taxes, depreciation and amortisation (Ebitda), which may see double-digit growth.

 

The company’s revenue mix has changed over FY20-25 with branded sales share at 70 per cent in FY25 versus 56 per cent in FY20 and expected to hit 76 per cent by FY28.

 

There are concerns around US payor (insurer) coverage for Leqselvi which may be a key drug, but these concerns may be overstated. Payor coverage for new treatment options for Plaque Psoriasis and Atopic Dermatitis in the US suggest that concerns around coverage for Leqselvi (an alopecia drug) are overstated and will be addressed in the medium term. 

 

Early biologics for Psoriasis such as Enbrel and Stelara faced hurdles, and so did Dupilumab (Dupixent) which was approved for Dermatitis in 2017. But over time, coverage for both treatment options expanded. Analysts are arguing that coverage evolution for Alopecia Areata may follow similar patterns, although some current health plans exclude Alopecia. Past studies indicate coverage for specialty drugs in the US turns favourable the longer drugs are in the market.

 

Sun's brand image and sales data in India suggest that it could maintain its industry-leading growth in the domestic market. Sun’s chronic (products acquired through Ranbaxy acquisition) market share in the Indian pharma market has increased by 30 basis points (bps) over January 2022-2025.

 

The portfolio is no longer acute-heavy with around equal sales share of acute and chronic drugs, given the 800 bps increase in the sales share of chronics in this three-year-period.

 

The Ranbaxy portfolio’s outperformance has been sharp, driven by the increase in its value share of chronic. Sun’s overall value market share gain has primarily been driven by share gains in rural and Tier II-IV towns, with its market share in rural now marginally ahead of that in metros.

 

Sun’s value market share gain has also been broad-based across zones, especially with gains in the East zone. In terms of volume as well as value, Sun (including Ranbaxy) has gained value as well as unit market share in 25 of its top 50 brands. The broad based nature of the performance suggests that it could continue to outpace the market.

 

The value share of chronic as well as plain molecules (as opposed to combination products) could be structural drivers of price competitiveness since pricing pressures are typically higher in acute and combination molecules. Volume growth is also visible.

 

Sun’s outperformance has been volume-led and broad-based across therapies that account for 95 per cent of Sun’s overall secondary sales.

 

There is little divergence in terms of value compound annual growth rate (CAGR) for its top 10, top 25, top 50 brands, etc with contribution of the top 50 brands to overall sales stable at 44.6 per cent. Sun has 29 brands that feature among the top 300 brands in the Indian pharma market.

 

Consolidated revenue in Q1FY26 saw gains of 6.9 per cent quarter-on-quarter (Q-o-Q) and 9.5 per cent Y-o-Y. Ebidta was up 19 per cent Q-o-Q and 12.9 per cent Y-o-Y. Profit after tax (PAT) was up 3.7 per cent Q-o-Q and up 5.7 per cent Y-o-Y.

 

Most analysts polled by Bloomberg since August are positive on the stock with an average target price of ~1,950, indicating an upside of about 21 per cent.