Brokerages mixed verdict on Sun Pharma after Q2 results, with HSBC and BofA cutting price targets.
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Sun Pharma's second-quarter results have gathered mixed response from brokerages. Revenue and EBITDA beat market estimates, but analysts flagged concerns over the company's US specialty business, higher R&D spending and the growth of newer drugs. While most brokerages maintained their ratings, HSBC and BofA cut their price targets.
Sun Pharma Q2 Results: Key Highlights
- Net profit declined 36.2% year-on-year to Rs 1,989 crore from Rs 3,118 crore.
- The company reported a one-time loss of Rs 1,269 crore during the quarter.
- Revenue increased 11.9% to Rs 16,199 crore from Rs 14,478 crore.
- Ebitda rose 4.8% to Rs 4,744 crore from Rs 4,527 crore.
- Ebitda margin stood at 29.3%, against the street estimate of 27.9%.
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What Brokerages Said
Citi: Buy
- Maintained its Buy rating and target price of Rs 2,280.
- Citi expects Sun Pharma to need a few more quarters to address the execution problems affecting Ilumya sales in the US. The planned November launch for psoriatic arthritis could provide an additional growth opportunity.
- The Organon acquisition is expected to close in the fourth quarter of fiscal 2027.
- Higher research and development spending in the second half could weigh on earnings. Citi has consequently reduced its Ebitda estimates for fiscal 2027-29 by 8% to 12%.
- The brokerage sees Leqselvi and Unloxcyt as important drivers of future growth.
HSBC: Buy
- Maintained its Buy rating but reduced the target price to Rs 2,050 from Rs 2,100, a cut of Rs 50.
- HSBC sees the US FDA approval of Ilumya for psoriatic arthritis as an opportunity to expand the drug's market. The launch is planned for November.
- The brokerage has lowered its earnings per share estimates for fiscal 2027-29 by 2.5% to 3.1%.
- Global innovative medicine sales grew 6.9% year-on-year to $356 million, providing support to the business.
BofA: Underperform
- Maintained its Underperform rating but lowered the target price to Rs 1,850 from Rs 1,915 earlier.
- BofA remains cautious about the company's higher research and development spending and its concentration in specialty medicines.
- Despite 17% growth in India sales, specialty sales increased by only 7%, highlighting the uneven growth across businesses.
- The brokerage highlighted Ebitda of Rs 46.6 billion and a margin of 28.8% in its assessment.
Kotak Institutional Equities: Add
- Maintained its Add rating and target price of Rs 2,060.
- Kotak said Ebitda beat expectations, largely because research and development spending was lower than anticipated.
- Growth in India continued to benefit from higher volumes and new product launches.
- Ilumya sales in the US remain under pressure due to execution difficulties and slower market growth. However, the approval for psoriatic arthritis could help improve its prospects.
- Leqselvi and Unloxcyt are expected to contribute to specialty growth as their sales gain momentum.
- Kotak remains cautious about Organon's medium-term growth prospects.
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