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Specialty scaling up

Sun Pharma 1QFY23 revenues stood at Rs 106.4bn up 10% YoY, which was in-line with our estimates. US revenues US$ 420mn (up 10.6% YoY) and India sales of Rs 33.9bn (up 2.4% YoY). Taro sales rose 9.4% QoQ to USD 157mn and Emerging markets sales were up 17.8% YoY. Revenue traction has supported 25.4% EBITDA margin, amid cost escalations, Winlevi launch expenses and normalization of operations in India. the company had a forex gain of Rs1.5bn, adjusted to this, PAT came in at Rs19.3bn declined by 2.6% YoY. We believe higher traction in the specialty basket with Winlevi offers higher delta to earnings along with strong support from India. Maintain BUY, with a TP of Rs1,050 (24x FY24E EPS).

US specialty continues to grow with Winlevi + Ilumya, Cequa

US sales grew 10.6% YoY to USD420mn led by traction in the specialty portfolio. Global specialty sales stood at USD191mn, up 3%QoQ mainly contributed by increased Winlevi prescriptions by the doctors to 10,000 (9,000 earlier) while sales from Ilumya, and Cequa remain stable. Specialty R&D spend contributed 21% of R&D spend. The management continues to follow-up with the USFDA for re-inspection of Halol, the compliance status may lead to improvement in pace of new launches.

Increased MR counts to drive volume and future growth

India business grew by 2.4% YoY and 9.4% QoQ to Rs33.9bn. However, Adj. for Covid the sales was up by 13% YoY. Sun launched 22 new products in Q1 (36 in FY23) and continues to hold 7.8% MS as of MAT Jun’21. With additional 10% field force expansion in FY23, after the success of filed force expansion taken in FY21 driven by twin objective of brand focus and geographical expansions. Management remain optimistic for better penetration in Metros and Tier I cities. This initiative coupled with automation, digitization and efficiency measures we expect domestic formulations to drive good profitability in near term.

Valuation and risks

The management focus is on gaining revenue traction, cost control/optimization, business continuity, and on the specialty basket. R&D may normalize to 7-8%, as clinical trials pick-up. SUNP maintains its leadership position in the domestic market and support from ROW markets is healthy. US market has been steady and improving its base riding on specialty business with new addition of Winlevi along with prescription increased to support the base further. We anticipate the specialty basket focus strategy to start paying better dividends from FY23E, which would add significant delta to earnings going ahead as most of the costs are already in the base. We value SUNP at 24x on FY24E EPS to arrive at a TP of Rs1,050. Maintain BUY. At CMP of Rs943, the stock trades at 26.7x FY23E EPS of Rs 35.3 and 22.2x FY24E EPS of Rs 42.6.s

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