Q3FY24 Review: Sun Pharma: Sustainability at the core with strong India/Spec

2 Feb 2024 , 02:07 PM

Sun Pharma’s Q3 performance was characterised by sustainable earnings growth drivers, as opposed to one-off led earnings beat for other large-cap pharma players, with both the Specialty and India business topping analysts of IIFL Capital Services estimates for the quarter. Global Specialty sales, ex-milestone income, grew 24% YoY and was 10% ahead of IIFLe, while the India business also outperformed IPM with growth of 11% in Q3. With mgmt targeting to sustain the growth momentum in the Specialty business (including Ilumya) and Deuruxo’s potential launch in FY26, analysts of IIFL Capital Services expect Sun’s Specialty business to clock 13% Cagr over FY24-27. This along with double-digit growth in branded generic (BGx) businesses of India/RoW should enable Sun to drive 14% core-EPS Cagr over the next 3 years. With low-dependence on US generics and ~85% of overall Ebitda accounted for by the BGx/Specialty business, analysts of IIFL Capital Services value Sun at ~30x FY26 core-EPS to arrive at their TP of ₹1,625. 

Specialty sales was 10% ahead of analysts of IIFL Capital Services estimates: 

Global Specialty sales increased QoQ from USD240m to USD276m in Q3 (excluding USD20m milestone income from Almirall, booked in RoW business) and was 10% ahead of analysts of IIFL Capital Services estimates driven by strong growth momentum in Ilumya, Cequa and Levulan. Analysts of IIFL Capital Services note that H2 is usually strong for Sun’s Specialty business led by seasonality benefits in its derma portfolio. Ex-Taro US generic sales was flat QoQ in Q3, as Mohali plant didn’t see any meaningful pick-up in supplies and Revlimid would have been flat QoQ at USD15m. 

Analysts of IIFL Capital Services expect Sun’s Specialty sales to clock 13% Cagr over FY24-27 to reach USD1.5bn, driven by 12% Cagr in Ilumya sales and USD50/100m revenue contribution from Deuruxo in FY26/27. While Sun’s execution in the Specialty business has been strong, mgmt expects to sustain the growth momentum given Ilumya (& IL-23 market) is still in the growth phase in the US. Nidlegy EMA filing for skin cancers is expected during H1CY24 and Sun intends to leverage the Odomzo commercial franchise for this product. Sun is also evaluating multiple indications for its GLP-1 product (GL0034), for which P2 studies are expected to begin by H2CY24. 

India business outperformance is also likely to sustain, as volume growth and new launches have accounted for ~70% of Sun’s domestic business growth over CY20-23. Per secondary data, Sun’s India volumes have clocked 6% Cagr over CY20-23 vs IPM volume growth of 3.4% Cagr. Analysts of IIFL Capital Services forecast Sun’s India business to clock 10% Cagr over FY24-27.