Buy Sun Pharma Ltd for the Target Rs.1,960 by Motilal Oswal Financial Services Ltd
Innovative/branded portfolio drives earnings
Leqselvi launch and Illumya filings to augment specialty portfolio
* Sun Pharmaceutical Industries’ (SUNP) 1QFY26 revenue and EBITDA were 3%/9% better than our estimates. However, Adj. PAT was lower than expected (6% miss) due to lower other income and a higher tax rate.
* SUNP has exhibited eight consecutive quarters of healthy double-digit YoY revenue growth in the domestic formulation (DF) segment, led by new launches, market share gains, and increased reach.
* In addition to steady traction in the Global specialty (renamed as global innovative medicines) portfolio, SUNP continues to expand its portfolio through the launch of Leqselvi, thereby driving its dermatology offerings.
* SUNP has discontinued R&D related to SCD-044, resulting in a charge of INR2.9b in P&L for the quarter. It has completed Ph-III for Illumya related to psoriatic arthritis, with regulatory filing expected by end-CY25.
* SUNP continues to work on addressing USFDA regulatory issues at Halol, Mohali, and Dadra.
* We have reduced our earnings estimates by 5%/4% for FY26/FY27, factoring in: a) higher opex for the branded business and b) higher tax rate. We value SUNP at 32x 12M forward earnings to arrive at a TP of INR1,960.
* We await clarity on the US tariff implications on SUNP’s innovative medicines portfolio. That said, SUNP is strengthening its innovative medicines franchise through portfolio expansion and marketing activities. The company is also reinforcing its branded portfolio while maintaining cost competitiveness in the generics business. We expect 14% earnings CAGR over FY25-27. Reiterate BUY.
Better product mix to drive operational margins
* SUNP’s sales grew 10% YoY to INR137.9b (vs our est: INR134.2b).
* DF sales grew 13.9% YoY to INR47b (34% of sales).
* US sales grew 4% YoY to INR40.4b (USD473m in CC terms; 29% of sales).
* EM sales grew 7.7% YoY to INR25.5b (19% of sales). ROW sales grew 18.5% YoY to INR18.7b (14% of sales).
* Gross margin expanded 90bp YoY to 79.6% for the quarter.
* EBITDA margin expanded 90bp to 29.1% (vs our est: 27.5%).
* Accordingly, EBITDA grew at 13.5% YoY to INR40.1b for the quarter (vs or est: INR36.9).
* SUNP had an exceptional item related to: a) the discontinuation of development work for SCD044 (INR2.9b) and b) settlement agreement of Taro/Sun with plaintiffs (INR5.3b)
* Adj. for the same and related tax, PAT was INR30b (our est: INR31.8b), up 9% YoY.
Highlights from the management commentary
* With Ph-III completed for psoriatic arthritis, SUNP intends to file Illumya for this indication by the end of CY25.
* SUNP is planning to launch Unloxcyt in 2HFY26. The company has recently launched Leqselvi and seen encouraging prescriptions.
* 1QFY26 sales of G-Revlimid were slightly higher QoQ.
* SUNP launched 4/5 products in the US/India market in 1QFY26.
* The company maintained its guidance of R&D expenses at 6-8% of sales for FY26
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