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Specialty business to pick up momentum :

The specialty segment is an important part of the company’s strategy, to build a pipeline of products by targeting unmet medical needs or by enhancing patient convenience. The company has invested significantly in acquiring certain products, incurring clinical trials, and building a front end team for this segment. We believe as key products start to gain market share, it should be revenue as well as margin accretive. Ilumya (an Interleukin inhibitor-IL-23) used for the treatment of psoriasis, is showing traction with 51% yoy growth in sales to $143 mn in FY21, while on opening up of economies, CEQUA (Chronic treatment for dry eye disease) should see pick up in sales, as the product has better efficacy and safety as compared to other products. The Management expects this segment to turn EBITDA positive in FY23.

Dominance in the domestic market continues :

Per capita spend in India is much lower at ~$21 as compared to more than $100 for the emerging markets. Rising incidence of chronic ailments, increasing insurance penetration, and growing healthcare awareness should drive domestic growth going forward. Sun Pharma is the market leader in India, with a market share of 8% as of Q1 FY22 on account of strong brand recall and relations with doctors. The company has increased its field force by 10% in FY21 to 10,900, which will enable it to cover some of the uncovered territories. We expect domestic revenue to grow at a CAGR of 10.5% outpacing the overall growth of the company which we expect to grow at a CAGR of 9.0% during FY21-23E.

US business to remain steady on account of new launches :

Over the last 3 years, US generic business including Taro Pharmaceutical Industries Ltd. , was impacted on account of price erosion of the products. The company withdrew some of the unviable ANDAs in FY20. Currently, the generic market appears to be competitive, thus, we expect new launches to lead to steady growth in the US.

OUTLOOK & VALUATION

We forecast Sun Pharma’s revenue/PAT to grow at 9%/9.8% CAGR over FY21-23E. With the improvement in the specialty business and domestic business, we expect ROCE to increase by ~100bps by FY23E. Going forward, we expect company to deliver an EPS of Rs.32.3 in FY23; assigning a target multiple of 31x, we arrive at a target price of Rs.1,000 showcasing an upside potential of 26% from current levels with an investment horizon of 18-24 mths.

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