Buy Sun Pharmaceutical Industries Ltd for the Target Rs. 1,875 By Prabhudas Liladhar Capital Ltd
Strong growth across key segments
Quick Pointers:
* US specialty sales surpassed generic sales. Global specialty sales up 16% YoY
* Unloxcyt US launch guided for H2FY26
Sun Pharma (SUNP) Q2FY26 EBIDTA (+7% YoY) in line with our estimates aided by higher specialty and RoW sales. 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. Though FY26 expenses (an additional $100mn spend) is likely to remain elevated given company are in investment phase to ramp up specialty pipeline; successful launch of Unloxcyt, scale up of Leqselvi along with progress of other pipelines will be key. Our FY27/FY28E EPS remains unchanged. We maintain ‘BUY’ rating with TP of Rs.1,875 based on 30x Sept 2027E EPS. SUNP remains our top pick in large cap space.
Revenue growth backed by higher RoW & US specialty: Revenues came in at Rs 145bn up 9% YoY vs our estimate of Rs 142.5bn. Domestic formulation growth was at 11% YoY. US sales came to $496mn ($473mn in Q1FY26). We estimated $485. Global specialty sales were up 16% YoY and 7% QoQ to $333mn. RoW markets remained healthy up 23% YoY while EMs growth stood at 16% YoY. API sales declined 19% YoY.
In line EBITDA; higher tax led to PAT miss: Reported EBIDTA came in at Rs 41bn up 7% YoY in line our estimates. OPM came in at 28.3% down 40bps YoY and 90bps QoQ. GMs came in at 79.3%, flat QoQ and YoY. Other expenses ex R&D was up 6% YoY and 18% QoQ at Rs38.5bn. R&D spend came in at Rs 7.8bn (5.4% of revenues) flat YoY. Tax rate higher at 27.6%. Forex gain stood at Rs 4.3bn. Adj for forex gain PAT came in at Rs 27bn (down 8% YoY) below our estimate of Rs 28.4bn.
Key concall takeaways: Domestic formulation: Market share sustained at 8.3% (vs 8% YoY). Volume followed by new product launches led to growth ahead of IPM. It launched 9 products during the quarter. US: Revenues declined on lower generic sales due to increased competition and lower gRevlimid volumes. Three new generic launches during the quarter. Global Specialty Sales: Innovative portfolio (Ilumya, Cequa, Odomzo) grew well. Leqselvi launched in Q2; initial access and prescriber response positive. US specialty sales exceeded generics for the first time. Ilumya now commercialized across 35 markets. Unloxcyt US launch on track for H2FY26 post FDA label update. Ilumya psoriatic arthritis filing planned in H2FY26. EMs: Delivered 10.9% growth YoY in CC terms, driven by broad-based gains in generics and innovative business. South Africa and Brazil delivered strong growth. RoW: Growth seen in both generic and innovative businesses. RoW share at 14.2% of revenue. R&D: 38% directed to innovative R&D. Focus areas: dermatology, ophthalmology, onco-derma. GLP-1: India launch to be in the first wave post LOE; no update for Canada. No comment on capacity/manufacturing yet. Tariffs: Management noted the tariff environment remains fluid and uncertain; no immediate impact on generics or innovative portfolio. Other: ETR at 25% for FY26E. Net cash: $2.9bn post checkpoint acquisition and MDL settlement.
Please refer disclaimer at https://www.plindia.com/disclaimer/
SEBI Registration No. INH000000271
