Q2FY24 Review: Sun Pharma: Resilient quarter despite Revlimid decline

2 Nov 2023 , 02:29 PM

Despite Sun’s Revlimid sales likely declining QoQ from USD50m to USD15m (IIFLe), Sun’s Q2 Gross Margin (GM) performance (flat QoQ at 77%) was strong driven by 11% YoY growth in the India business and 3.4% cc QoQ growth in the Global Specialty business. The prescription trends for Sun’s Specialty products continue to remain robust and the company will also benefit from seasonal uptick in its Specialty derma products in H2FY24. While Sun has achieved a key milestone with Deuruxolitinib’s NDA filing in US, analysts of IIFL Capital Services believe Ilumya’s P-3 data for PsA expected by late CY25 is 6-12 months behind their expectations. Nonetheless, with a steady double-digit growth trajectory in the India/EM/RoW business and mid-teens growth in the Specialty business, they expect Sun to deliver 13% base business EPS (ex-Revlimid, Concert) Cagr over FY23-26. Analysts of IIFL Capital Services maintain their BUY rating with a TP of Rs1340. 

Prescription trends for Specialty products remains encouraging: 

Global Specialty sales increased 19.4/3.4% YoY/QoQ to USD240m in Q2FY24, driven by 21/39% YoY growth in prescription volumes for Ilumya/Cequa. Mgmt also indicated that Specialty sales have picked-up from Oct’23 and with the seasonal uptick expected in Specialty derma products in H2, Analysts of IIFL Capital Services expect Global Speciality sales to increase to USD255/263m in Q3/Q4. Deuruxo’s PDUFA date in Jul’24 remains the next trigger to watch out for and mgmt believes that 8mg dosage has a better safety profile vs competing drugs. Analysts of IIFL Capital Services expect Global Specialty sales to clock 14% Cagr over FY23-26 primarily driven by Ilumya, Winlevi and Deuruxo. 

Gradual improvement in Mohali supplies will drive growth in the US generic business in H2: 

Sun’s ex-Taro US generic sales declined QoQ from USD160m to USD120m (IIFLe), with the majority driver of sequential decline being Revlimid (down USD35m QoQ). However with the Mohali US supplies resuming gradually and higher Revlimid sales in H2, Analysts of IIFL Capital Services expect Sun’s ex-Taro US generic quarterly revenue run-rate to improve to USD130m in H2. 

Robust growth in India and Specialty business is supporting margins: 

Despite a large sequential decline in Revlimid sales, Sun’s GM was flat QoQ at 77% driven by 11/13/18% YoY growth in the India/EM/RoW segments and continued scale-up in the Speciality business. With a steady double-digit growth trajectory in the branded generics businesses and midteens growth in the Specialty business, Analysts of IIFL Capital Services expect Sun’s base Ebitda margins (ex-Revlimid) to improve from 25% in FY23 to 26.5-27% in FY26.