Q3FY23 Review: Sun Pharma: Strong Specialty offsets slightly weak margins

1 Feb 2023 , 10:22 AM

Sun Pharma’s Q3 demonstrated continued strength in its Specialty business (up 11% QoQ), which was partly offset by lower margins (70bps miss) owing to higher selling & distribution expenses. Ilumya and Winlevi were key growth drivers for Specialty revenue (increased QoQ from USD201mn to USD223mn, excl. milestone income). While both US/EU markets are performing well for Specialty business, mgmt expects growth momentum to sustain in Ilumya/Winlevi (Winlevi’s profitability has improved with rationalization of EAP), which will be further complemented by endJan23 launch of Sezaby.

Sun’s quarterly performance over the next two quarters will be swayed by full-quarter impact of Halol Import Alert (IA) and incremental R&D/operating expenses from the Concert acquisition. However, mid-teens growth in Specialty business, low-double-digit growth in India/RoW, and declining share of US generics will drive further GM expansion (GMs improved 100bps in M9FY23) and operating leverage for Sun. We expect 16% Ebitda Cagr (12% ex-Revlimid) over FY23-25. Sun remains our top pick in the pharma sector led by its diversified growth engines of India and Specialty businesses.

Sun’s ex-Taro US generics business declined YoY in Q3, as Halol IA impacted for 3 weeks during the quarter. Although Sun is evaluating site-transfers for both approved and pipeline products, we expect annualized sales impact from Halol IA to be USD75mn in FY24.

Sun Pharma remains analysts of IIFL Analysts top pick in the pharma sector led by its diversified growth engines of India and Specialty businesses. They maintains buy at the target price of Rs 1170.