Sun Pharma - Global Specialty Pipeline To Drive Growth: Nirmal Bang

Nirmal Bang Report

Sun Pharmaceutical Industries Ltd.'s revenue is expected to grow at ~10% compound annual growth rate over FY23-FY25E, driven by all geographies (excluding U.S. generics business).

Domestic growth will mainly be driven by continuous strong growth in the chronic segment. Global Speciality segment revenue is expected to grow at ~13% CAGR over FY23-FY25E 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 the world and emerging markets are expected to grow at 8.7% and 9.5% CAGR, respectively over FY23-FY25E. Ebitda margin is expected to remain healthy at ~27%. Net profit is expected to grow at ~12% CAGR over FY23- FY25E mainly on the back of a strong operational performance.

The stock is currently trading at 29.5 times/26 times price-to-earning on FY24E/FY25E and 20.3 times/17.7 times enterprise value/Ebitda on FY24E/FY25E. Return on equity and return on capital employed are expected to remain decent at 16.5% and 15.2%, respectively in FY25E.

Free cash flow generation is expected to remain strong at more than Rs 200 billion over FY24E FY25E. 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 ~27% despite higher research and development spends.

However, additional cost and loss of revenue due to the Halol import alert and Mohali plant issues are likely to be near term concerns for Sun Pharma.

We maintain 'Buy' on Sun Pharma with a revised target price of Rs 1,371, valuing it at 26 times September-25E earnings per share of Rs 48.

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