Sun Pharma shares jump as net profit surges, sales improve; speciality sales boost outlook

Sun Pharma’s share price shot up 4.7% on Wednesday morning to trade at Rs 508 per share after the company reported a strong jump in profits and sales. The sun was again shining bright on Sun Pharma in the July-September quarter as net profit surged 49% on-year basis to Rs 1,590 crore as sales improved in the quarter. Sales in the US were at $335 million, flat over last year but up by 19% compared to the first quarter, recovering to pre-coronavirus levels. The US sales account for about 30% of total consolidated sales. Shares of Sun Pharma are up 56% from their March lows.

In India, Sun Pharma saw improvement in sale of branded formulations maintaining its market share of 8.1%. Sun Pharma’s US subsidiary Taro posted second quarter sales of$143 million, down 11.2% over last year and up by 21% over the first quarter of this fiscal year. Taro’s net profit for the quarter was $45 million, 19.7% shy of what it reported last year. API in focus for Sun Pharma this quarter again with sales at Rs 510 crore, up 9% on year. “Our API business imparts benefits of vertical integration and continuity of the supply chain for our formulations business. We continue to increase the API supply for captive consumption for key products,” Sun Pharma said.

“We expect specialty sales CAGR of ~14% (FY20-23E), mainly driven by Ilumya and Cequa, partially offset by generic competition in Absorica,” said brokerage and research firm Emkay Global. Speciality sales of Sun Pharma, according to Emkay Global, will drive sustainable EBITDA margin expansion in the medium term despite continued investments in specialty R&D and marketing. With a ‘Buy’ rating Emkay Global has a target price of Rs 560 per share on Sun Pharmaceutical.

Sun Pharma’s strong product pipeline in the speciality segment has helped the pharma major. “ Sales of our specialty products have improved sequentially with Ilumya and Cequa reaching pre-Covid levels. We continue to focus on growing our topline, gaining market share, cost control and business continuity,” said Dilip Shanghvi, Managing Director, Sun Pharma in an earnings release. Further, Sun Pharma has launched the speciality drug Ilumya in Japan, and the initial response has been good, according to the management.

Analysts at Kotak Securities find the risk-reward ratio to be favorable as they upgrade the stock to an ‘Add’ rating. “After a strong 2Q, we increased our EPS estimates for FY2021 by 6% and for FY2022-23E by 3- 4%. Post the recent correction, SUNP trades at 20X FY2022E EPS and 11X FY2022E EBITDA providing favorable risk reward,” the said. Kotak Securities has a fair value of Rs 525 per share on the stock.