Street stays bullish on Sun Pharma despite mixed Q2, earnings downgrades

Analysts remain positive on Sun Pharma despite slower US and speciality growth in Q2FY27, supported by strong domestic sales, though near-term earnings estimates have been cut.

Sun Pharmaceutical Industries (Sun Pharma) had a mixed second quarter of financial year 2026-27 (Q2FY27) where growth in the speciality business and US business slowed, but India growth accelerated. While many analysts continue to be bullish on India’s most valuable pharma company, which closed with a market capitalisation of ₹4.24 trillion on Monday, near-term earnings projections were downgraded along with target prices post-Q2 last Friday. The company’s share price gained initially, but has since given up most of the gains to close at ₹1,768.

 

In Q2FY27, revenue beat consensus slightly. Earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin—adjusted for forex gains—was at 28.8 per cent. The domestic business grew 17 per cent year-on-year (Y-o-Y), while emerging markets (EM) revenue grew 18 per cent and the rest of the world (RoW) 13 per cent. Speciality and innovation were slow.

 

Organon’s Q3 was along expected lines, and the acquisition process is on track for completion in early 2027. Sun Pharma had announced Organon’s acquisition in April for an enterprise value of about $12 billion. Operating cash flow (OCF) has grown 26 per cent Y-o-Y in the first nine months (9M) of 2026, with around $3 billion of cash on the balance sheet.

 

Sun Pharma’s revenue grew 12 per cent Y-o-Y to ₹16,200 crore. Innovation saw a slowdown since Ilumya’s growth in the US slowed. Illumya is a prescription biologic medication used to treat adults with moderate to severe plaque psoriasis. The US revenue was $455 million, up $28 million quarter-on-quarter (Q-o-Q), while speciality revenues (up $5 million Q-o-Q) was lower than expected due to slowdown in Ilumya. Ilumya’s US psoriatic arthritis indication is set for soft launch in November.

 

The gross margin was 80.9 per cent, ahead of consensus. Adjusted PAT (profit after tax) grew 1 per cent Y-o-Y to ₹3,160 crore. Excluding generic gRevlimid, Sun Pharma’s revenue increased 15 per cent Y-o-Y, while Ebitda grew 21 per cent. Projections suggest Ilumya’s new psoriatic arthritis FDA label will lead eventually to peak sales of $90-130 million. Sun Pharma and Organon can generate $300 million peak sales in Europe.  

 

 

The company reiterated high single-digit guidance for FY27 (without taking Organon into consideration). Management commentary claims the business outlook remains strong over the medium to long term, with continued traction in the speciality portfolio. But near-term earnings growth will be under pressure due to high marketing expenses on new speciality products and slow US generics performance as well as projected higher R&D expenses in the second half (H2) of FY27.

 

Speciality revenue is slow as Ilumya’s growth has slowed down during the quarter. The company says it has taken corrective actions to revive growth but didn't discuss the issues in details. Over the next three years, $450 million incremental revenue is expected through traction in launches and steady traction in base portfolio. Serious revenue contribution from Unloxcyt and Leqselvi to specialty products marketed by Sun Pharma in the US and global markets, will come through in FY28, but FY27 is likely to see the company incur higher spending.

 

US generics’ contribution inched up sequentially on five new launches. But the US business may be muted due to regulatory issues across manufacturing plants. Overseas growth may be higher in rupee terms given forex trends. Recent semaglutide approvals in South Africa and Brazil could drive emerging market (EM) revenues.

 

Domestic revenue was ₹5,550 crore, up 17 per cent Y-o-Y, with volume growth of 6.5 per cent. Domestic momentum should sustain, given recent field-force expansions, and the ramp-up of semaglutide and new products.

 

The Ebitda margin could improve to 30 per cent as specialty products begin to contribute positively. Sun Pharma’s India business contributed 34.5 per cent to its consolidated revenue. It retained market share of 8.6 per cent. Growth initiatives include brand-building, scientific promotion, field-force expansion and increasing prescriber reach. The company launched 15 new products domestically.

 

US sales contributed 27 per cent to consolidated sales, with five generics launched. US sales declined 8.2 per cent Y-o-Y due to erosion in lenalidomide revenue. However, US sales were up 6.5 per cent Q-o-Q. EM revenue grew 7.6 per cent Y-o-Y to $350 million and contributed a fifth to revenue. RoW revenue stood at $241 million, higher Y-o-Y, contributing 14.3 per cent to consolidated revenue. Globally, innovative-medicine sales grew 6.9 per cent Y-o-Y to $356 million, accounting for 21.1 per cent of consolidated sales.

 

Corrective actions in and psoriatic arthritis launch may restore growth over next few quarters. Ilumya did well in Romania and Brazil. Approximately one-third of psoriasis patients also have psoriatic arthritis, but concrete revenue potential was not discussed. Commercialisation of the arthritis indication will leverage existing sales force, extending coverage beyond dermatologists to rheumatologists. Management confirmed semaglutide commercialisation in India, South Africa, and Brazil.

 

Sun Pharma’s recent rupee non-convertible debenture (NCD) issuance is for refinancing existing borrowings. R&D expenditure was ₹778 crore or 4.8 per cent of sales, with innovative medicines at 32.4 per cent of total R&D spending.

 

Management expects significant scale-up in H2, meeting full-year guidance of 6-7 per cent. The stock continues to attract investors with a long-term perspective, although earnings projections have been pared down for FY27.

 

According to Bloomberg, 27 of 31 analysts polled post-Q2 are bullish, while three are bearish and one is neutral. Their average one-year target price is ₹2,122.47.