Sun Pharma Q3 Review: Analysts Optimistic On Global Specialty Pipeline, India Business
The company's third-quarter net profit rose 5% year-on-year to Rs 2,166 crore.
Most analysts are optimistic about Sun Pharmaceutical Industries Ltd. and recommend a 'buy,' citing long-term prospects because it has a strong branded portfolio and pipeline of specialty drugs with healthy margins.
The company's third-quarter net profit rose 5% year-on-year to Rs 2,166 crore, according to its exchange filing. That compares with the Rs 2,082-crore consensus estimate of analysts tracked by Bloomberg.
Sun Pharma Q3 Results FY23: Key Highlights (YoY)
Revenue is up 14% to Rs 11,241 crore (the consensus estimate is Rs 11,101 crore).
Ebitda was up 15% at Rs 3,007 crore (consensus estimate: Rs 2,945 crore).
Margin at 26.7% versus 26.5%. (Consensus estimate: 26.5%).
Shares of Sun Pharma declined 1.85% to Rs 1,015.40 apiece as of 9:40 a.m., while the benchmark Nifty 50 gained 0.51% ahead of the Union Budget 2023.
Of the 46 analysts tracking the company, 42 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 13.8%.
Brokerages' take on Sun Pharma's quarterly results:
Motilal Oswal
Maintains a 'buy' with a target price of Rs 1,220 apiece, implying an upside of 18%.
In-line earnings were led by improving traction in specialty sales, better emerging market traction, and a currency benefit.
This was despite regulatory hurdle at Halol and step-up in other expenses - higher selling and distribution spend.
Good visibility for sustainable earnings growth going forward is due to an enhanced focus on strengthening specialty franchises through the addition of products in dermatology, increasing footprint for better reach/promotional activities, outperforming the industry in branded generics markets, and building a niche ANDA pipeline.
Adjusting for one-time milestone payment, Q3FY23 revenue was up 13% year-on-year.
Specialty sales were 21.6% year-on-year (ex-milestone), led by Illumya/Winlevi.
The increase in R&D on the specialty portfolio is partly due to trials related to additional indications for Illumya.
The increased prescriptions and onboarding of pharmacy benefit managers are driving sales of Winlevi.
The stoppage of shipments from Halol has led to a decline in U.S. generics sales (ex-Taro).
This was offset to some extent by two new launches in Q3 and market share gains in existing products.
Patent expiry related to Istamet (diabetes drug) and challenges in gastric division affected the growth in the domestic formulations.
Systematix
Maintains a 'buy' rating with a target price of Rs 1,232 apiece, implying an upside of 19%.
Earnings in-line with estimates.
Despite the impact of the Halol import alert, the U.S. business grew, led by specialty assets—Levulan, Ilumya, Winlevi, and Cequa.
The India business was impacted by price cuts taken on two in-licensed products that went off patent and poor performance in the Gastro-Intestinal business unit.
Higher R&D expenses, depreciation, and other operational costs plugged margin expansion during the quarter.
Also one-off costs related to Halol import alert.
The company continues to build its specialty business through acquisitions and licencing deals.
Recent addition of NCE drug – Deuruxolitinib through acquisition of Concert Pharma, adds visibility to the growth in the specialty business.
Expect the drug to be commercially launched in early CY24.
Sun Pharma also launched Sezaby in January, the first and only product approved for treating seizures in neonatal patients.
The two products will strengthen the company’s specialty portfolio.
Key growth levers in FY24–FY25 are:
1) High single-digit to low double-digit growth in India, emerging markets, and specialty assets, which contribute about 72% of revenue,
2) Launch of complex generic assets in the US (including gRevlimid)
3) Turnaround in its Taro subsidiary,
4) Leveraging the balance sheet for opportunistic acquisitions and in-licensing deals
5) Improved realisation in Winlevi, led by improving insurance coverage.
Nirmal Bang
Maintains a 'buy' rating with a target price of Rs 1,202 apiece, implying an upside of 16%.
Results were in line with estimates; revenue grew on the back of strong growth in the US specialty segment.
Strong sales in the specialty segment in the US were partially offset by a decline in the generics business due to the import alert at the Halol plant.
Improvements in the existing specialty products’ margins and changes in mix are likely to be offset by continuous spending on the expansion of the specialty pipeline.
Positive on Sun Pharma due to the following factors:
(i) Ramp-up of branded and specialty businesses in the US (the recently acquired Deuroxolitinib would further strengthen the specialty pipeline).
(ii) Continued growth in India business
(iii) Potential inorganic opportunity due to a strong balance sheet, especially in dermatology, ophthalmology, and oncology specialty segments, and
(iv) Maintenance of a healthy Ebitda margin of around 27% despite higher R&D spends.