Company Introduction

Sun Pharma is India's largest pharmaceutical company, generating INR 48,497 crore in revenue in FY24. In a fragmented Indian pharmaceutical market, Sun Pharma holds a leading 8.5% share. The company boasts a strong global presence, with a growing specialty segment contributing 19% to revenue. Sun Pharma is aggressively investing in R&D, allocating INR 3,178 crore in FY24, to build a robust specialty portfolio and drive future growth. Its commitment to cost control and operational optimization is evident in its strong EBITDA margin of 26.9% in FY24.

FY24 Financial Performance

• Revenue grew from INR 38,861 Cr. in FY23 to INR 48,497 Cr. in FY24 (10.5% YoY increase)

• EBITDA increased from INR 11,647 Cr. in FY23 to INR 13,023 Cr. in FY24 (11.8% YoY increase)

• The EBITDA margins expanded 40 bps from 26.5% in FY23 to 26.9% in FY24.

• Profit After Tax rose from INR 8,474 Cr. in FY23 to INR 9,576 Cr. in FY24 (13% YoY increase)

• R&D spending jumped from INR 2,368 Cr. in FY23 to INR 3,178 Cr. in FY24 (35.2% YoY increase)

Current Specialty Product Pipeline

1. CTP-543 (deuruxolitinib), an oral JAK inhibitor in Phase 3 trials for alopecia areata.

2. Ilumya (tildrakizumab), an IL-23 antagonist injectable being explored for psoriatic arthritis

3. Nidlegy, an immunocytokine under registration for skin cancer treatment.

4. MM-II, a liposomal intra-articular lubrication therapy for osteoarthritis pain.

5. SCD-044, an oral selective SIPR1 agonist for psoriasis and atopic dermatitis.

6. GL0034, an injectable GLP-1R agonist for type 2 diabetes

Key Drivers and Investment Thesis

High growth in the Specialty Segment: The company's specialty revenue, currently constituting 19.1% of total sales, is expected to grow at a 20% CAGR, potentially reaching ₹12,400 Cr. by FY26 and accounting for 25% of total revenue.

Dominance in the Domestic Market: In the domestic market, with an 8.5% share in the Indian Pharmaceutical Market, domestic sales are anticipated to grow at a 12% CAGR, targeting ~₹14,400 Cr. by FY26.

Expansion in the Emerging Markets: Emerging markets have shown a 17% YoY growth in Q4FY24 and with an assumed 15% CAGR, EM revenue could reach ~ ₹9,600 Cr. by FY26.

Merger with Taro Pharma: On 23rd May 2024, the merger of Taro Pharma and Sun Pharma was announced. Post the merger, Taro will become a privately held company wholly owned by Sun Pharma. Sun Pharma will effectively tap into the overseas markets, as Taro has a strong footprint in the United States, Canada, Israel, and other international markets.

Focus on R&D: The company is focused on cost optimization and operational efficiencies to improve profitability. R&D expenditure is guided at 8-10% of sales for FY25, assumed at 9%, which translates to ~₹4,160 Cr.

Margin Expansion: The company aims to enhance operating margins (EBIT) from 24% in FY24 to 26% by FY26. Consequently, net profit is expected to grow at an 18% CAGR, potentially reaching ~₹8,800 Cr. by FY26.

Valuation and Recommendation

We value the stock at 34x FY2026E Earnings Per Share (EPS), with a target price of INR 1,751, a projected upside of 17% over the next 12-18 months.

We recommend a "BUY" rating on Sun Pharmaceuticals Limited based on high growth guidance in the specialty segment and margin expansion over FY25-26

Disclaimer:

Mool Capital Limited is a SEBI Registered Research Analyst having registration no. INH000012449. This report has been prepared by Mool Capital Pvt. Ltd. and is solely for information of the recipient only. The report must not be used as a singular basis of any investment decision. The views herein are of a general nature and do not consider the risk appetite or the particular circumstances of an individual investor; readers are requested to take professional advice before investing. This document is not, and should not, be construed as an offer or solicitation of an offer, to buy or sell any securities or other financial instruments. This report should not be construed as an invitation or solicitation to do business with Mool Capital. Mool Capital and its affiliated company(ies), their directors and employees may; (a) from time to time, have a long or short position in, and buy or sell the securities of the company(ies) mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the company(ies) discussed herein or act as an advisor or lender/borrower to such company(ies) or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.