Sun Pharma's growth pill: Specialising in specialty and scaling in India

Traction for its specialty portfolio, a strong showing in the domestic market, and better regulatory compliance are positives for the country’s largest pharmaceutical (pharma) company, Sun Pharmaceutical Industries.

Given the triggers, some brokerages have increased their earnings per share estimates and target price for 2024–25 (FY25).

This should sustain the momentum for the stock, which has been one of the major pharma gainers in 2023–24 (FY24), rising 57 per cent. It is currently trading at Rs 1,547 per share.

Although the base for its specialty segment is high, brokerages expect the company to sustain growth rates.

Sun’s US prescription data, according to Sharekhan Research, reflects positive momentum for its specialty portfolio.

Sun’s specialty portfolio is driven by strong growth in Cequa (dry eye), Ilumya (psoriasis), Winlevi (acne), and Levulan (cancer).

The brokerage expects Sun’s specialty business to grow at an annual rate of 17 per cent to $1.4 billion by 2025–26 (FY26).

Export data in February indicates strong traction for Sun, led by the cancer drug Revlimid, which grossed sales of $140 million.

This was expected as the contribution from the drug was limited in the December quarter.

Its strong performance in the December quarter was driven by better margins at Taro, its subsidiary, and the $20 million milestone from the Ilumya partnership.

Given that it now has complete control over Taro, the consolidated entity should benefit from cost synergies and integration in the manufacturing areas.

Sun can use Taro’s cash to fund its acquisitions.

Improving compliance is another positive, as there are reports that Sun’s active pharmaceutical ingredient unit in Ankleshwar, Gujarat, has received a No Action Indicated status, which translates into clearance for the manufacture and export of its products.

While this is positive, analysts at Elara Securities, led by Bino Pathiparampil, believe that the prolonged impact of the US drug regulator’s (Food and Drug Administration) actions on the Halol and Mohali facilities is a key risk.

In addition to this, an extended delay in the US launch of Deuruxolitinib (an autoimmune disease medication) is another risk to its estimates.

After the third quarter (Q3) FY24 results, the brokerage had not only raised its earnings for FY24 and FY25 by 3-5 per cent but also its target price to Rs 1,524 per share.

For the India business, the company is focused on prescription-led growth.

After five consecutive quarters of lacklustre performance, growth picked up in the second quarter of FY24 and was sustained in Q3FY24.

Both quarters saw a growth of 11 per cent each.

While some brokerages expect it to post high single-digit growth, others say it will either perform in line with or exceed the pharma market growth rate going ahead.

Volumes and new launches have accounted for three-fourths of Sun’s India business as compared to two-thirds for the pharma market.

Bolstering its medical representative workforce by 20 per cent is expected to help the company enhance its penetration in the Tier-II and Tier-III markets.

Research analysts Rahul Jeewani and Naman Bagrecha of IIFL Research believe that the company will continue to do well on the back of sustained growth
momentum in the specialty business, reducing dependency on US generics, and double-digit growth in the India business.

The brokerage has a ‘buy’ rating with a target price of Rs 1,625 per share.

Sharekhan Research, too, has a ‘buy’ rating as Sun’s specialty portfolio continues to gain traction, followed by a dominant position in the domestic pharma market.

The brokerage has increased its earnings estimates by 1 per cent and 3 per cent for FY25 and FY26, respectively, and has increased the price target to Rs 1,727 for the stock.

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