Q1FY24 Review: Sun Pharma: Pickup expected in India/Specialty biz ahead

4 Aug 2023 , 01:30 PM

Sun Pharma’s base performance in Q1 (ex-Revlimid sales of USD50mn in Q1FY24 vs USD25mn in Q4FY23) was steady and in-line with analysts of IIFL Capital Services estimates, as slightly muted growth in the India/Specialty business was offset by a 50bps beat on base business Ebitda margins (at 25% in Q1). While 2% QoQ decline in Global Specialty revenue was owing to the seasonality in Levulan, Rx volume trends for other products remain robust. Analysts of IIFL Capital Services expect Specialty revenue to grow at 14% Cagr over FY23-26, aided by likely approval for Ilumya’s PsA indication in FY26 and geographical expansion of Specialty products to markets outside the US. India business growth should also normalise to 9-10% going ahead, as the tough base of Sitagliptin anniversarizes and NLEM-price hikes contribute from Q2. They upgrade FY24-26 EPS by 1-4% and forecast 12-13% base business EPS Cagr over the next 3 years. Maintain BUY, with TP of Rs1,315 (upside of 16%, pegged at ~27.5x 2YF EPS). 

Robust volume growth for Ilumya and Cequa: 

Although seasonality in Levulan led to Specialty revenue declining QoQ from USD237mn to USD232mn in Q1, Rx volume growth for Ilumya/Cequa was robust at 15/6% QoQ. Ilumya hasn’t seen any negative impact post entry of bHumira, while Sun is also accelerating P-3 PsA trials of Ilumya by expanding patient recruitment in the existing sites & adding new sites as well. Winlevi has 26% MS in the acne market and recent on-boarding of a new payer should help further accelerate sales. There is no update on Deuruxolitinib, with Sun looking to file the 8mg dose with FDA at the earliest. Analysts of IIFL Capital Services expect Specialty revenue to clock 14% Cagr over FY23-26 from USD870mn to USD1.3bn. 

Restart of shipments from Mohali should drive growth: 

Sun’s ex-Taro US generic sales increased QoQ from USD130mn to USD160mn, with Revlimid contributing USD25mn incremental sales QoQ. Analysts of IIFL Capital Services expect Revlimid revenue of USD145-180mn over FY24-26. While Sun hasn’t seen any significant channel uptick in its base business and has neither benefitted from injectable shortages in the US, re-initiation of supplies from Mohali plant over the next few months should help drive growth in its US Generic business. 

India business growth was muted at 5% YoY, owing to price erosion in Sitagliptin post patent expiry and NLEM price cuts. However, with adverse base of Sitagliptin now behind and full-quarter benefit of NLEM price hikes expected from Q2, mgmt is optimistic of growing in line or outperforming IPM growth going ahead.