Sun Pharma Q4 Results Review: Analysts Positive On Global Specialty Pipeline, Branded Portfolio

Most analysts remain positive on Sun Pharmaceutical Industries Ltd. maintaining a 'buy', citing long-term growth prospects due to its strong branded portfolio and pipeline of specialty drugs.

The company reported net profit of Rs 1,984 crore in the fourth-quarter of fiscal 2023 as against a loss of Rs 2,277 crore a year earlier, according to its exchange filing. That compares with the Rs 1,978-crore consensus estimate of analysts tracked by Bloomberg.

Sun Pharma Q4 Results FY23: Key Highlights (YoY)

• Revenue is up 16% to Rs 10,931 crore (Bloomberg estimate: Rs 10,968 crore).

• Ebitda was up 30% at Rs 2,829 crore (Bloomberg estimate: Rs 2,993 crore).

• Margin at 25.9% versus 23.1%. (Bloomberg estimate: 27.3%).

Shares of Sun Pharma declined 0.76% to Rs 962.50 apiece as of 9:15 a.m., compared with a 0.62% gains in the benchmark Nifty 50.

Of the 42 analysts tracking the company, 39 have a 'buy' rating, two suggest a 'hold,' and one recommends a 'sell,' according to Bloomberg data. The average 12-month consensus price target implies an upside of 18.8%.

Brokerages' take on Sun Pharma's quarterly results:

• Maintains a 'buy' with a target price of Rs 1,160 apiece, implying an upside of 20%.

• Operational miss for Q4FY23 performance on ex-milestone income basis, led by higher-than-expected operational cost.

• Sharp uptick in gross margin (YoY/QoQ) due to increased share of higher-margin products.

• But the benefit was offset to some extent due to increased promotional spending in the branded segment.

• Management guided for high single-digit YoY growth in revenue for FY24.

• R&D expenditure for FY24 is expected to be 7-8% of sales.

• The company is conducting a study on a letter received from the U.S. FDA on Deuruxotinib (Alopecia Areata treatment drug).

• They are evaluating the filing for both the 8mg and 12mg strengths of the medication.

• Reduce earnings estimates by 4% each for FY24 and FY25 to factor in

  a) elevated sales and distribution costs, and

  b) higher R&D spend related to specialty products.

• Remains in good stead to scale up business related to the specialty portfolio.

• The company is also making efforts to introduce new products and develop existing products for alternate indications.

• Higher R&D spending may affect near-term margins.

• But it would strengthen Sun Pharma's positioning in innovative product offerings based on successful clinical outcomes.

• Niche launches such as that of g-Revlimid would enable better sales and profitability prospects in the U.S. generics segment.

• Sustained strong brand franchise and enhanced marketing efforts would also drive better-than-industry growth in the branded generics segment.

• Maintains a 'buy' with a target price of Rs 1,130 apiece, implying an upside of 17%.

• Sun Pharma’s FY24 guidance of high single-digit topline growth appears conservative.

• This is given that the growth momentum is expected to sustain in the specialty and India businesses at mid-teens and low double-digit, respectively. 

• Revlimid will broadly help offset the impact of the Halol import alert and Mohali non-compliance.

• Ilumya, Winlevi, and Cequa will drive growth for the specialty business in FY24/25. 

• Deuruxolitinib will potentially contribute from FY26.

• But the U.S. FDA’s safety-related clinical hold on the higher dose raises questions about the product’s peak sales potential, particularly given Eli Lilly’s Olumiant ramp-up.

• Nonetheless, scale-up in Sun Pharma’s specialty business and consistent low-to-double-digit growth in branded generic markets have diversified its business away from U.S. generics.

• This should enable the company to deliver about a 12% EPS CAGR over FY23–26.

• Remains top-pick in the large-cap pharma space.

• Maintains a 'buy' with a target price of Rs 1,125 apiece, implying an upside of 16%.

• Q4FY23 earnings were in line with estimates.

• Higher contribution from specialty assets and gRevlimid offset pressures in the U.S. generics business.

• The company has given a guidance that it will deliver high single-digit revenue growth in FY24, which is in line with brokerage's estimates.

• Disruption in supplies of certain high value generics and slowdown in growth in specialty prescriptions has adversely impacted sentiments.

• The key growth avenues for the specialty business could be:

  -- higher realisation and improved uptake in Winlevi,

  -- improved market share in Ilumya,

  -- approval and launch of Ilumya in China, and

  -- stronger than expected uptake in Sezaby (indicated for neonatal seizures).

• Q4 earnings base largely builds the impact of supply disruption in their generic business.

• Should see a favorable momentum going forward.

• Any material acquisitions and in-licensing deals would help strengthen sentiments on the company.

• The key growth levers for Sun Pharma 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) Price erosion settling down in Taro’s U.S. business, translating to value growth

  3) Out-licensing deals and milestone income from its specialty assets

  4) Ramp up in gRevlimid

  5) Revival in sales of U.S. generic products where supplies have been disrupted (exempted products from Halol and gAmbisome).