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SUNP’s 2Q performance was in line with JMFe/ Street estimates. Revenue growth was led by India and RoW markets whereas US performance was muted. While increase in global specialty sales (USD 240mn; +19%YoY), gRevlimid (lower QoQ) and new launches (such as gVyvanse) bring stability to the US business, impact of Halol/ Mohali site issues may keep near-term growth in check. The USFDA has accepted Deuruxolitnib 8mg filing for review - SUNP clarified that the launch could be post approval (key positive; FY25-end launch likely). We continue to believe that Deuruxolitinib will be a significant growth driver for SUNP with potential to scale up to USD 400-500mn revenue within 4-5 years of its launch. Domestic business grew 11% YoY (3% beat) and the management aims to deliver IPM-beating performance consistently over the long term. Big-ticket M&As can not be ruled out given SUNP’s strong cash position. SUNP’s domestic leadership, balance sheet strength and longterm specialty growth visibility reaffirm our positive stance on the stock. We increase our multiple to 26x (vs. 25x earlier) and reiterate SUNP as our top pick in the sector. We maintain BUY with a Sep’24 TP of INR 1,305.

* Specialty growth sustains strong momentum: Global specialty grew 19% YoY to USD 240mn (in line) driven by Ilumya, Cequa and Winlevi. USFDA has accepted the company’s NDA filing for Deuruxolitnib (8mg) which, in our view, is a meaningful opportunity in the Alopecia Areata market and is more effective than peers (Olumiant and Litfulo; Refer Exhibit). We expect this launch by end-FY25. Uncertainty remains over the 12mg dose. Ilumya PsA trials are progressing with faster enrolment and studies are expected to be completed in FY25 (first topline data by late-25). SUNP maintains its R&D guidance in FY24 as the specialty pipeline progresses in trials. The China opportunity for Ilumya could play out soon as approval is expected in 1-2 quarters.

* US regulatory challenges overshadowed by specialty/ gRevlimid: US business ex-Taro grew 6% YoY to INR 28bn (5% miss) due to lower gRevlimid contribution QoQ (USD 25- 30mn). Taro’s earnings was impacted by one-offs pertaining to special committee cost, and its operations remain unaffected by the on-going Israel conflict. SUNP launched three generic products this quarter (ex-Taro) including gVyvanse (TAM: USD 1bn+; currently under shortage). Notably, SUNP has resumed supplies from Mohali albeit normalcy will be achieved gradually. We believe that Halol IA and Mohali Consent Decree will keep nearterm growth in check and, once that is resolved, growth could accelerate.

* FY24 guidance unchanged: SUNP maintained its conservative guidance of high singledigit revenue growth (1H growth ~11%) for FY24. India revenue grew 11% YoY to INR 38.4bn (3% beat) despite softer acute season. SUNP launched eight new products in India during the quarter including Tyvalzi (Sovateltide), a novel first-in-class treatment for acute cerebral ischemic stroke inlicensed from Pharmazz Inc. The management remains confident of delivering IPM-beating growth and we believe 10-12% growth is achievable over the next few years. EM grew 13% YoY (in line) to INR 23.5bn while RoW grew 18% YoY to INR 17bn (7% beat). API business grew 5% YoY to INR 5bn (9% miss).

* Key financials: Sun’s Revenue/EBITDA/Adj. PAT of INR 121.9bn/ 31.8bn/ 23.8bn grew +11%/+8%/+5% YoY and were broadly in line with our estimates and 0%/ -2%/ +1% vs. consensus estimates. Gross margin improved ~190bps YoY to c. 77% (JMFe: 76%), primarily due to change in product mix and contribution of higher specialty sales. EBITDA margin declined 90bps YoY to 26.1% (JMFe: 26.2%). We estimate Revlimid contribution of USD 25-30mn, adjusted for which margin was ~25% whereas ex-Taro ex-Revlimid margin was ~28%. Forex loss for the quarter stood at INR 341mn vs. INR 2.4bn (loss) in 2Q23. R&D expenses stood at INR 7.7bn of which global specialty constituted c. 38%. The management reiterated its R&D guidance for FY24, as the clinical studies for Illumya and other specialty products progress.

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