Sun Pharma Q1 Review: Specialty Portfolio Ramp-Up, U.S. Generics Launch To Augur Well, Say Analysts
Here's what brokerages have to say about Sun Pharma's Q1 FY23 results.
Analysts expect Sun Pharmaceutical Industries Ltd.'s scale-up of its specialty portfolio, robust franchise building in branded generics and new drug applications in the U.S. generics market to augur well for the company.
India's largest drugmaker posted a 43% year-on-year jump in its profit for the quarter ended June, aided by a low base, beating estimates. Its revenue also increased over the year earlier, while operating profit stayed flat. Its operating profit margin narrowed 280 basis points.
Shares of Sun Pharma were trading 2.7% lower, the worst since June 17, as of 9:40 am on Monday. Of the 44 analysts tracking the company, 40 have a 'buy' rating, three suggest a 'hold, and one recommends a 'sell', according to Bloomberg data. The 12-month consensus price target implies an upside of 13.1%.
Here's what brokerages have to say about Sun Pharma's Q1 results:
Maintains 'buy' with a target price of Rs 1,100 apiece, implying an upside of 17%.
The company delivered a strong beat on Q1 FY23 earnings, led by broad-based growth across business segments (U.S./domestic formulation /emerging markets/RoW).
Lower research and development spends has further enhanced margin in Q1 FY23.
However, the postponement of clinical trials would delay in obtaining potential approvals/ subsequent commercial benefit from new chemical entity assets.
Remains positive on Sun Pharma on the back of sustained scale-up in the specialty portfolio, robust franchise building in the branded generics portfolio, and healthy ANDA pipeline awaiting approval.
Global specialty sales stood at $191 million (around Rs 1,500 crore) in Q1 FY23. It stood at $673 million (around Rs 5,300 crore) in FY22.
Ilumya (plaque psoriasis), Cequa (dry eyes), and Odomzo (skin cancer) were the key growth drivers, while there has been a gradual build-up in the sales of Winlevi (acne vulgaris).
Challenges in Ukraine/Russia had delayed clinical trials related to Ilumya.
Sun Pharma would have to conduct phase I/ phase II trials for Ilumya for Japan market. Hence, it would be at least 1.5-2 years away for commercial benefit from this product.
The company has four specialty products under clinical trials.
R&D expenses towards specialty portfolio were lower on account of slight delay in trials due to geopolitical tensions. However, Sun Pharma is working towards ramping up the trials which is expected to drive the R&D expenses in later part of the year.
Considering better traction in the specialty portfolio led by Ilumya/Cequa/Winlevi, consistent launch momentum in generics, and Taro sales steadying, U.S. sales are expected to exhibit around 18% CAGR over FY22-24.
Domestic formulation sales were driven by the top three therapies of cardiac, central nervous system, gastro leading to strong outperformance against Indian pharma market, according to AIOCD-AWACs.
Sun Pharma’s branded formulations business (including DF) now contributes more than 50% to revenue. The business (excluding DF) is exhibiting strong growth on the back of growth in focus markets.
Downgrades to 'hold', but hikes target price to Rs 972 apiece from Rs 961 earlier, implying an upside of 3%.
Sun Pharma's Q1 FY23 performance has been better than estimates on all fronts.
Remains positive on its long-term outlook considering ramp-up in revenue in branded/specialty business in the U.S., continued growth in India business, potential to buy inorganic growth based on strong balance sheet, and to maintain healthy margins at around 27% despite inching up R&D spending. However, current valuations are fair.
Specialty business was supported by ramp up in Ilumya, Cequa and Winlevi, which partially offset price erosion in Absorica (cystic acne).
Expects the company to continue to outperform industry growth amid strong chronic portfolio.
Expects India business to outperform and gradual ramp-up in global
specialty sales to continue.
Expects Ebitda margin to remain at around 27% with better operational
efficiency and improving revenue mix likely to be offset by increase in R&D.
Focus on cost control and free cash flow generation has augured well.
The management is awaiting establishment inspection report from the U.S. FDA for Halol plant.
It has added 90% of the proposed domestic field force addition in FY23.
: Faster-than-expected growth in India and U.S.
: Higher-than expected pricing pressures in the U.S. and regulatory hurdles.
Maintains 'buy' with a target price of Rs 1,112 apiece, implying an upside of 18%.
The highest-ever quarterly revenue in Sun Pharma’s history was driven by growth across geographies with emerging markets and U.S. formulations growing the fastest on quarter-on-quarter and year-on-year basis.
Higher than estimates after-tax profits were due to sustained scale-up in the specialty business, along with all-round growth across markets.
Specialty sales were up 29% year-on-year, led by ongoing traction in key products—Odomzo, Ilumya, Winlevi and Cequa. While Winlevi is still ramping up, Levulan (warty overgrowths of skin) sales declined due to a seasonal effect.
Sun Pharma also continued to gain market share in the domestic formulations space.
The company could face some near-term challenges on account of recent launch of generic Restasis (help increase natural ability of eyes to produce tears), which could hamper growth momentum for Cequa (the company currently does not see much price erosion for the product); elevated R&D spends for new product development, coupled with higher promotional expenses across geographies may compress margins.
Sun Pharma expects to spend around 7-8% of total sales in FY23 as R&D expenses due to costlier trials in the future.
However, other than these short-term blips, the company is well-poised for growth going forward.
The estimates assume low double-digit growth and the key drivers being double-digit growth in domestic branded formulations and U.S. markets.
Growth in U.S. should be driven by ramp-up in Winlevi, ongoing growth momentum in Ilumya and complex generic launches, including g-Pentasa (bowel disease) and g-Ambisome (fungal infections), which may face limited competition.
The company said it would not need any major incremental capex in FY23, except for regular operational maintenance.
Systematix Institutional Equities
Maintains 'buy' with a target price of Rs 1,084 apiece, implying an upside of 15%.
Optimistic on Sun Pharma’s growth prospects, led by growth in the global specialty portfolio and strong growth trajectory in the emerging markets business.
India branded formulation sales saw subdued growth on account of a high base last year (Covid).
The company’s reported growth of 11% quarter-on-quarter in the U.S. was aided by full quarter impact of consolidation of Alchemee acquisition and currency appreciation.
The U.S. base business was flat quarter-on-quarter on constant currency basis.
Strong quarter-on-quarter growth in specialty assets (Ilumya, Cequa and Winlevi) and new complex generic launches including g-Pentasa, Loteprednol Etabonate and g-Ambisome were offset by decline in Taro, g-Sutent and Levulan sales.
Expects the contribution of g-Pentasa and g-Ambisome to expand in subsequent quarters, and aid quarter-on-quarter growth.
Sun Pharma would improve its realisation per prescription in Winlevi on a QoQ basis, once they improve formulary coverage. It should help in significantly expanding sales and margins, and likely become a key growth lever.
The company has seen marked improvement in margins, despite high single to low double digit increase in operational costs QoQ, primarily led by revenue growth in emerging markets, India and 3% currency appreciation; Ebitda margin expanded 203 basis points.
Attributes the increase in operational costs to aggressive promotion activities across geographies, Alchemee integration, and employee addition in the Indian market.
The specialty marketing platform addresses the scalability challenge that peer group companies face; additionally, the company faces limited price erosion risks in its specialty portfolio in the US market.
Clearance of Halol, Gujarat facility can be an incremental revenue driver for the company.