PL Stock Report: Sun Pharmaceutical Industries (SUNP IN) - Q2FY24 Result Update – In-line quarter aided by specialty and domestic formulation - BUY

Sun Pharmaceutical Industries (SUNP IN) - Param Desai - Research Analyst, Prabhudas Lilladher Pvt Ltd.

Rating: BUY | CMP: Rs1,116 | TP: Rs1,280

Q2FY24 Result Update – In-line quarter aided by specialty and domestic formulation

Quick Pointers:

♦ Global specialty sales in upward trajectory at $240mn; up 20% YoY.

♦ Filed for Deuruxolitinib with USFDA and likely PDUFA in July 2024. Healthy pipeline for global specialty business with six products under clinical trials

Our FY24/FY25 earnings estimates broadly remains unchanged. Sun Pharma (SUNP) Q2FY24 EBIDTA was in line with our estimate, aided by domestic formulation and specialty sales. Overall specialty sales, GMs continue to remain healthy. Over last few years SUNP dependency on US generics has reduced and company’s growth is more functional on specialty, RoW and domestic pharma business that has strong growth visibility. Furthermore, acquisition of Concert Pharma along with progress of other pipelines provides visibility to SUNP’s specialty pipeline beyond FY25. We maintain ‘BUY’ rating at TP of Rs.1280 (Rs1265 earlier) based on 26x Sept 2025E earnings. SUNP remains our top pick in large cap space.

Revenue growth aided by specialty and domestic formulation: Revenues came in at Rs 122bn up 11% on YoY (up 2% QoQ) in line with our estimates. Domestic formulation growth was strong at 11% YoY. US sales came in $430mn ($471mn in Q4FY23). Taro sales came in at $148mn; up 14% YoY. Global specialty sales came in at $240mn; up 3% QoQ and 20% YoY. EM and ROW growth was healthy at 13% and 18% YoY respectively. API sales were up by 5% YoY.

In-line EBIDTA; R&D cost further inch up: EBIDTA adj for one offs in Taro came in at Rs32.7bn; up 2% YoY; in line with our estimate. GMs continue to remain healthy and came in higher at 76.8%, flat QoQ. Ex Taro GMs were down by 120bps QoQ. R&D cost came in higher at Rs7.7bn, 6.3% of sales, up 35% YoY. Ex R&D other expenses came in higher; up 24% YoY and 10% QoQ. OPM adjusted for one off came in at 26.8%, down 130bps QoQ. Tax rate came in higher at 14%. Reported PAT of Rs24bn; up 5% YoY was in line with our est.

Key concall takeaways: Strong ramp-up was seen in global specialty business driven by Ilumya, Cequa and Winlevi. The QoQ decline in US sales was led by lower gRevlimid sales and facility related issues. Mgmt cited supplies from Mohali facility have resumed and expect recovery to gradual. SUNP has launched 8 new products during Q2FY24 in domestic formulation market. Launched 3 generic products in US on ex Taro basis. Mgmt cited that prescription trend for Winlevi has increased. Intends to launch IIumya in China in CY24 post marketing partner gets approval. Specialty R&D accounted for 38% of total R&D spend for Q2. Specialty R&D pipeline includes six molecules undergoing clinical trials which have strong competitive profile. Filed deuruxolitinib under 8mg strength with USFDA and PDUFA date likely in July 2024.SUNP recently licensed specialty product Nidlegy which got positive phase 3 data. Halol plant is expected to get re-inspected soon. Other expenses included $6.1mn one off expenses in Taro related to specialty committee charges. Tax rates are likely to inch up. Guidance for R&D remains on track.

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