Sun Pharma - Specialty To Drive Future Growth: Nirmal Bang

Nirmal Bang Report

Sun Pharmaceutical Industries Ltd.'s revenue is expected to grow at ~12% compound annual growth rate over FY23-FY26E, driven by all geographies (excluding U.S. generics business).

Domestic growth will mainly be driven by continuous strong growth in the Chronic segment. Global Specialty segment revenue is expected to clock ~14% CAGR over FY23-FY26E mainly on the back of persistent ramp-up in Winlevi and Ilumya, which will partially be offset by heightened generic competition in Absorica.

Rest of world/emerging market markets are expected to grow at 33%/11% CAGR over FY23-FY26E. Ebitda margin is expected to remain healthy at ~27%. Net profit is expected to grow at ~16% CAGR over FY23-FY26E mainly on the back of a strong operational performance.

The stock is currently trading at 32.7 times/27.3 times PE on FY25E/FY26E and 23.2 times/19.7 times enterprise value/Ebitda on FY25E/FY26E. Retrun on equity/return on capital employed is expected to remain decent at 17.7%/16% in FY26E. Free cash flow generation is expected to remain strong at more than Rs 200 billion over FY24E-FY26E.

We remain positive about Sun Pharma on a long-term basis due to the following catalysts:

1. Ramp-up of branded/specialty business in the U.S.,

2. Continued growth in India business,

3. Potential inorganic opportunity given the strong balance sheet,

4. Maintenance of healthy Ebitda margin at ~25%.

However, additional costs and revenue loss due to the Halol import alert and Mohali plant issues are likely to be near-term concerns for Sun Pharma. Additionally, increase in research and development costs, other expenses and reduced topline growth are key concerns. We are structurally positive about the company and maintain Acumulate with a target price of Rs 1,579, valuing it at 28 times FY26E earnings per share of Rs 56.40.

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