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SUNP’s 1Q earnings were well ahead of JMFe/ street estimates. This outperformance was primarily driven by US generics (ex-Taro) including gRevlimid and healthy specialty sales of USD 232mn notwithstanding seasonality and Mohali/ Halol regulatory issues. The upward trajectory of specialty business continues with increasing volume share of Ilumya and Winlevi (Winlevi has garnered 26% share among top 10 branded drugs). We expect SUNP’s global specialty business to be ~USD 1bn in FY24 which should further aid overall profitability. US FDA re-inspection for Halol and Mohali, in our view, could be in FY24-end / early FY25. We remain optimistic about filing of Deuruxolitinib in CY23. We believe domestic growth will revert to early double digit as patent expiry of sitagliptin in the base and NLEM impact normalises. While R&D spends on specialty increased to ~36% in 1Q, overall R&D expenses are expected around lower end of the guidance. We maintain BUY with a Mar’24 Price Target of INR 1255.

* Specialty growth sustains strong momentum: Global specialty grew 21% YoY to USD 232mn (in-line) driven by Ilumya, Cequa and Winlevi whereas weak Levulan sales dragged growth. Winlevi is gaining volumes share (26% market share among top 10 branded drugs for the indication, 91% retention rate among doctors) as SUNP has expanded their formulary access by adding another PBM. The company apprised that the partial hold on the Deuroxolitnib 12mg trial has been lifted and there was no slowdown in the progress of on-going 8mg clinical trial. We continue to believe that Deuruxolitinib is a meaningful opportunity in the Alopecia Areata space and is more effective than current peers. We expect this launch by end of FY25. Xelpros is under shortage and SUNP is site transferring the product. SEZABY will continue to ramp up albeit gradually. Ilumya PsA trials are progressing with faster enrolment (readout in FY24) and studies are expected to be completed in FY25. SUNP expects to maintain R&D guidance of 7-8% in FY24 as it continues to invest in both generics and specialty. We believe China opportunity for Ilumya could play out well with an experienced partner (CMS). SUNP is open to outlicensing GLP-1 pipeline asset in key markets and/or acquiring targets with focus on the aforesaid therapy. The management is actively scouting for in-licensing opportunities in Derma and Opthal.

* FY24 revenues to grow in high single digit: SUNP maintain their conservative guidance of high single-digit growth in FY24 and remains well on track to achieve that. US business ex-Taro grew 23%YoY to INR 30.5bn (15% beat). SUNP launched 2 generic products this quarter (ex-Taro). The management alluded to significant gRevlimid contribution this quarter (JMFe: USD 40-45mn) adjusted for which EBITDA margins were 26-27% meanwhile ex-Taro (ex-Revlimid) EBITDA margins were 30%+. Notably, SUNP is yet restart supplies from Mohali. The ransomware attack impacted ANDA filings. Taro’s derma portfolio faces high competitive intensity which has resulted in tepid growth. We expect near-term pressures in the US due to Halol IA and Mohali Consent Decree to be offset by gRevlimid and higher specialty sales. EM grew 13%YoY (in-line) to INR 21.5bn while RoW grew 9%YoY to INR 16bn (in-line) and accounts for 14% of total sales for the quarter.

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