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Traction from Domestic & Specialty business continues

Sun Pharma (SUNP) Q4FY26 EBIDTA growth of 6% YoY was lower than our estimates led by higher opex. Key markets like India and specialty continue to report strong growth. Over last few years SUNP dependency on US generics has reduced and company’s growth is more functional on specialty, RoW and domestic pharma that has strong growth visibility. Its recent acquisition of Organon in all cash deal provides an entry into biosimilars and diversify its branded generics portfolio. The deal is EPS accretive from Year 1 and will see significant EPS accretion. Company has managed to enjoy higher multiple compared to peers given its exposure to high growth branded generics portfolio; key will be to grow acquired portfolio than its historical run-rate for stock to outperform. Our FY27E/FY28E EPS broadly remains unchanged. We maintain ‘BUY’ rating with TP of INR 2,070 based on 23x FY28E combined entity EPS.

Domestic business and Specialty business aids growth YoY:

Revenues came in at INR 146bn up 13% YoY vs our estimate of INR 144.5bn. Domestic formulation growth was strong at 15% YoY. US sales stood at USD 459mn (USD 477mn in Q3FY26). We estimated USD 474. Global specialty sales were up 20% YoY to USD 354mn. Sequential decline adjusted for milestone was largely due to seasonality in certain products. RoW markets remained healthy up 16% YoY while EMs growth was at 24% YoY. API sales increased by 26% YoY.

EBITDA miss est, OPM lower at 23.9%:

Reported EBIDTA came in at INR 35bn up 6% YoY, below our estimate of INR 37bn. OPM came in lower at 23.9%, down 170bps YoY and 650bps QoQ. GMs came at 80.8%, up 120bps YoY. Adj for milestone income in Q3FY26 GMs were up on QoQ basis. Other expenses ex R&D were up 22% YoY and 9% QoQ at INR 44bn. R&D spend stood at 6.7% of revenues up 16% YoY. Tax rate higher at 26.5.% Forex gain stood at INR 4.3bn. Adj for forex gain. PAT came in at INR 23bn; we estimated INR 25.5bn. Adj EPS at INR 9.5/share.

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