IGI Logo

Sun Pharma (SUNP) 1QFY25 result was a miss on revenue while EBITDA/PAT beat our estimates. Overall revenues grew 6% YoY to Rs125bn (our est. Rs130bn), led by India/EM delivering 16%/11% YoY growth offset by muted US growth. API/ROW declined 8%/1% YoY respectively. Global specialty grew 15% YoY to USD266mn (down 2% QoQ). Gross margins expanded 200bps to 78.6% (down 120bps QoQ). EBITDA grew 11% YoY to Rs35bn with margins expanding 130bps YoY (+350bps QoQ) at 28.2% (our est. 26.5%). Adjusting for FX loss of Rs505mn, PAT grew 26% YoY to Rs29bn (our est Rs26bn) driven by higher other income (+2.5x YoY), lower finance costs (down 24% YoY) and lower tax rate of 16.1% (v/s 18.9% in 1QFY24). Going forward, management expects specialty business to grow led by growth in key assets (Ilumya, Cequa, Winlevi). It expects R&D expense to be 8-10% of sales in FY25. The increase in R&D spend is largely for specialty portfolio. Moreover, India segment is likely to witness volume-led growth across therapies. Accordingly, we raise our earnings estimates for FY25/FY26 by 8%/4%, factoring a) DF segment outperforming IPM, b) superior execution in global specialty sales. We value SUNP on SOTP (36x FY26 core EPS + NPV of gRevlimid at INR28) to arrive at TP of Rs1900. Maintain ADD.

Specialty business to continue to drive US segment

In 1QFY25, US sales declined 1% YoY to USD466mn, largely led by seasonality impact. Global specialty sales were USD266mn (up 15% YoY; ~18% of sales). The growth was mainly contributed by increased traction in llumya, Winlevi and Cequa. To drive future growth, SUNP continues to invest in strengthening the product pipeline. In Jul’24, the USFDA approved Leqselvi (deuruxolitinib) 8 mg tablets. However, a motion seeking a preliminary injunction has been filed in a U.S. court to prevent its launch. Moreover, it is conducting phase-3 trials of Ilumya while other products such as MM-II, SCD-044 and GL0034 are under various stages of trial. We expect 20% sales CAGR in US segment reaching USD2.7b over FY24-26.

DF segment to continue outperforming IPM

In 1QFY25, India business grew 16% YoY to Rs41bn led by steady performance in chronic/ sub-chronic therapies such as Anti-diabetic, CNS, Gastro and Urology. SUNP is focusing towards increasing reach and access to gain market share while improving productivity. SUNP launched 6 products in the DF segment in the quarter. We expect DF segment to post 12% CAGR over FY24-26.

Maintain ADD

SUNP focus is on gaining revenue traction, cost control/optimization, business continuity, and on the specialty basket. SUNP maintains its leadership position in the domestic market and support from ROW markets is healthy. US market will continue to be driven by specialty business. We raise our earnings estimates for FY25/FY26 by 8%/4%, factoring a) DF segment outperforming IPM, b) superior execution in global specialty sales. We value SUNP on SOTP (36x FY26 core EPS + NPV of gRevlimid at INR28) to arrive at TP of Rs1,900. Maintain ADD.

Valuations

We raise our earnings estimates for FY25/FY26 by 8%/4%, factoring a) DF segment outperforming IPM, b) superior execution in global specialty sales. We value SUNP on SOTP (36x FY26 core EPS + NPV of gRevlimid at INR28) to arrive at TP of Rs1,900.

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331