Sun Pharma Share Price: Specialty business is witnessing improved traction

Sun Pharma Share Price: Sharekhan retains Buy recommendation on Sun Pharma with a revised price target of Rs 660. Sun Pharma Specialty business is witnessing improved traction. Pick up in the US specialty business coupled with likely traction from a sturdy new product launch pipeline, would fuel the growth of the US business. Moreover, geographic expansion/increasing penetration for specialty portfolios, in markets other than the US, would also aid the growth of specialty portfolios. Healthy growth in chronic therapies along with new launches gaining traction and a possible improvement in acute therapies is likely to fuel growth in the domestic formulations business.

Moreover, a favourable mix is expected to lead to margins expansion, which in turn would result in a strong 22% PAT CAGR over FY2020-FY2023. At CMP, the stock trades at an attractive valuation of 21.3x/19x its FY2022E/FY2023E EPS. Healthy outlook for specialty portfolio, improved growth prospects, healthy balance sheet, and improving return ratios would support P/E multiple expansion.

Specialty business is on a path to improvement and is expected to gain traction. Two of its existing specialty products - Ilumya and Cequa are witnessing a rise in the prescription numbers and have almost crossed the pre-COVID levels. Also the company had taken a price hike in the specialty portfolio in recent past, which bodes well. The other products in the specialty basket are also witnessing a gradual pick up and would add to the top line growth.

In addition to this the company is working on expanding the geographical presence for the specialty portfolio, which would further drive the growth. This coupled with a strong product pipeline, which is expected to unfold in the near term and comparatively stabilizing price erosion in the US generics markets could support growth. Domestic formulations business is on a strong footing backed by sturdy growth in the chronic.

Given Sun Pharma’s leadership position in the chronics segment which is likely to sustain and the expected pick up in the recent launches would drive the growth in the domestic business and would enable the company to outperform the broader markets. Collectively, US and India constitute around 60% of the company’s overall revenues and a strong growth outlook across both the geographies augurs well from a growth perspective. Therefore, healthy growth outlook across both the key geographies and increasing penetration in other geographies would drive growth for Sun Pharma.

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Key Risks:

1) Regulatory compliance risk including delay in product approval
2) Currency risk