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In-line quarter, R&D spend to pick up in H2FY27

Sun Pharma (SUNP) Q2FY27 EBIDTA growth of 14% YoY was in line with our estimates. Key markets such as India and EM markets continue to drive growth while global specialty sales growth was muted with 7% YoY growth. ILUMYA’s US approval for active psoriatic arthritis and the growth potential of LEQSELVI and UNLOXCYT provide further growth opportunities. Over the years, SUNP has reduced its dependence on US generics, with specialty, RoW and domestic formulations driving growth. The proposed Organon acquisition will expand its branded generics portfolio and provide an entry into biosimilars, with integration progressing and closure on track for Q4FY27E. The deal is EPS accretive from Year 1 and will see significant EPS accretion. While the acquisition offers significant growth and earnings potential, successful integration and growth acceleration of the acquired portfolio will be key to driving further stock rerating. Our FY28E/FY29E EPS broadly remains unchanged. We maintain ‘BUY’ rating with TP of INR 2,150 based on 25x FY28E combined entity EPS.

Strong domestic business performance YoY:

Revenues came in at INR 162bn up 12% YoY vs our estimate of INR 159bn. Domestic formulation growth was strong at 17% YoY. US sales stood at USD 455mn (USD 427mn in Q1FY27). We estimated USD 460. Global specialty sales were up 7% YoY (up 1% QoQ) to USD 356mn. RoW markets remained healthy up 13% YoY while EMs growth was at 18% YoY. API sales increased by 14% YoY.

Higher GMs & lower R&D aided EBITDA:

Reported EBIDTA ex forex came in at INR 46.6bn up 14% YoY, in line with our est. OPM came in at 28.8%, down 50bps YoY. GMs came at 80.9%, up 150bps YoY. Other expenses ex R&D were up 11% YoY and 7% QoQ at INR 43.8bn. R&D spend stood at INR 7.8bn (4.8% of revenues) down 1% YoY. Tax rate higher at 26.6% Forex gain stood at INR 785bn. Adj for forex gain. PAT came in at INR 32bn. Adj EPS at INR 13.2/share.

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