Add Sun Pharma Ltd for the Target Rs.2,000 by Emkay Global Financial Services Ltd
We downgrade Sun Pharma to ADD from Buy, with SOTP-based Jun-27 TP of Rs2,000 (TP revised down by ~5% from Rs2,100). Sun’s 4QFY26 EBITDA (exforex gain) was ~7%/~10% below our/street estimates. Sustained domestic outperformance stood out as a positive. We are not too perturbed by the QoQ decline in specialty sales, given that we see no signs of a slowdown in Ilumya (besides, expansion into Psoriatic Arthritis is just round the corner) and it is still very early days for Leqselvi + Unloxcyt. We will also not read too much into the conservative high single-digit topline growth guidance for FY27. However, we note that the stock price performance will now reflect the potential trajectories of Sun’s existing business as well as that of Organon. To that extent, we believe that a turnaround in Organon will not be a function of superior execution alone (which Sun has clearly demonstrated in the past) and could be contingent on external factors/the market landscape turning favorable (for instance, Medicaid-linked challenges currently impacting Nexplanon sales). Consequently, the valuation multiples will also reflect this dynamic. We believe the stock could now enter a lull phase with upside capped near our TP even as FY27 will be the year when doubts around the market potential of Leqselvi + Unloxcyt will be addressed
US sales undershoot expectations;
domestic outperformance continues Global specialty sales were up ~20% YoY to USD354mn, below our expectations. US sales were below our estimate on account of lower specialty as well as generic sales. Domestic formulations growth (at 15% YoY vs our estimate of 13% YoY) was ahead of our expectations. EBITDA (ex-forex gain) was below our and street estimates, despite a gross margin beat, owing to higher other expenses (R&D spend was in line).
KTAs from the earnings call
1) US specialty sales surpassed USD1.1bn in FY26; global Ilumya sales stood at USD796mn in FY26. Ilumya has now been launched in 40 countries; specialty growth has also been driven by the non-Ilumya portfolio and ex-US markets (Ilumya + Odomzo).
2) Initial response from physicians on Unloxcyt’s efficacy as well as its adverse event profile have been positive; Sun is focusing on ensuring availability on formularies + training to ensure proper administration. Is seeing good uptake from cancer centers with repeat purchases.
3) Heavily discounted Stelara biosimilars do not impact Medicare Part B reimbursement for Ilumya.
4) Sun’s 30bps market-share gain in India in FY26 was its highest gain since the Ranbaxy acquisition. Sun has completed clinical studies for oral Semaglutide in India and aims to launch at the earliest.
5) Expects the Organon acquisition to be completed by 4QFY27; an integration management office has been established to ensure Day-1 preparedness.
6) The upcoming greenfield facility in MP will be a sterile-only facility aimed at ensuring adequate capacity for global markets (incl US).
7) R&D spend in FY27 expected at ~6-7% of sales; specialty R&D accounted for ~39% of the total R&D spend in FY26.
8) Net cash balance stands at USD3.2bn
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