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Strong performance on all fronts; specialty buoyed…

About the stock: Sun is the world’s fourth largest specialty generic company with sales of US$3.8 billion and boasts of 43 manufacturing sites addressing segments like specialty products, branded generics, complex generics, pure generics and APIs

With a market share of 8.2%, Sun is ranked No. 1 in domestic formulations. It enjoys leadership position in 11 specialties based on prescription

Revenue breakup: US formulation~30%, Indian branded~30%, Emerging markets~17%, RoW~14%, API & Others~6%

Q3FY22 Results: Strong set of numbers in line with our estimates amid strong momentum across business verticals.

Sales were up 11.6% YoY to | 9863.1 crore

EBITDA was at | 2606.3 crore, up 8.3% YoY with margins at 26.4%

Adjusted PAT was at | 2058.8 crore (up 11.1% YoY)

What should investors do? Sun Pharma’s share price has increased by ~1.4x over the past five years (from ~| 636 in February 2017 to ~| 892 levels in February 2022)

Maintain BUY on the back of consistent traction on the specialty front, linear growth in India formulations besides calibrated approach in generics

Target Price and Valuation: Valued at | 1075 i.e. 28x P/E on FY24E EPS of | 38.3

Key triggers for future price performance:

Higher contribution from specialty & strong domestic franchise is likely to change the product mix towards more remunerative businesses by FY23

It has embarked on a strategy to in-license latest generation patent protected products from various innovators for India market

In US, Sun is diversifying into specialty products like Ilumya, Levulan, BromSite, Cequa, Xelpros, Odomzo, Yonsa, Winlevi, etc

Launch momentum in India (25 launches in Q3), pick-up in demand for chronic and sub-chronic segment backed by high PCPM to sustain growth

Alternate Stock Idea: Apart from Sun, in our healthcare coverage we also like Cipla.

Cipla has a long-drawn strategy of targeting four verticals viz. One-India, South Africa & EMs, US generics & specialty and lung leadership

BUY with target price of | 1100

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