PL Stock Report: Sun Pharmaceutical Industries (SUNP IN) - Q1FY24 Result Update - gRevlimid and lower other expenses aided EBITDA - BUY

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

Rating: BUY | CMP: Rs1,141 | TP: Rs1,265

Q1FY24 Result Update - gRevlimid and lower other expenses aided EBITDA

Quick Pointers:

♦ Global specialty sales remain healthy at $232mn; up 21% YoY.

♦ Healthy pipeline for global specialty business with five products under clinical trails.

Our FY24/FY25 earnings estimates stands increased by ~3%. Sun Pharma (SUNP) Q1FY24 EBIDTA was 10% above our estimate, aided by gRevlimid and lower other expenses. 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.1265 (Rs1140 earlier) based on 27x FY25E earnings. SUNP remains our top pick in large cap space.

Revenue growth aided by higher US sales: Revenues came in at Rs 119bn up 11% on YoY vs our estimates of Rs 116bn. The beat was aided by higher US generic sales led by gRevlimid. Domestic formulation growth was muted at 5% YoY. US sales came in $471mn ($430mn in Q4FY23). Taro sales came in at &159mn; up 1% YoY. Global specialty sales came in at $232mn; down 3% QoQ adjusted for one-time milestone. We believe that the company has booked +$50mn sales from gRevlimd in US. EM and ROW growth was healthy at 13% and 9% YoY respectively. API sales were down by 10% YoY.

Lower other expenses aided EBITDA: EBIDTA came in at Rs33.3bn; up 22% YoY; 10% above our estimate. GMs continue to remain healthy and came in higher at 76.6%, up 380bps YoY aided by high margin gRevlimid sales. R&D cost came at Rs6.8bn, 5.7% of sales, up 47% YoY. Ex R&D other expenses came in lower; up 7% YoY and down 8% QoQ. OPM came in at 28%, up 200bps QoQ and 250 bps YoY. There was an exceptional loss of Rs3.2bn related to impairment charges, forex loss towards Ranbaxy Nigeria business.

Key concall takeaways: Growth in domestic formulation business was impacted due to price erosion on account of patent expiry in Sitagliptin and impact of products under NLEM. For Q1FY24, SUNP launched 10 new products. Strong ramp-up in global specialty business driven by Ilumya, Cequa and Winlev while QoQ decline in specialty sales was due to lower Levulan sales led by seasonality. Launched two generic products in US on ex Taro basis. Specialty R&D pipeline includes five molecules undergoing clinical trials. Specialty R&D accounted for 36% of total R&D spend for Q1. In June 2023, company received approval from Health Canada for Winlevi. Reiterate its filing of Deuruxolitinib in H1FY24 and remain confident about efficacy of 8mg doses. In June 2023, SUNP presented data for Type 2 diabetic product- GL0034 and initial response has been encouraging with weight reduction up to 11% within 8 weeks duration. Company have also accelerated pace of clinical trial for its Ilumya –psoriatic arthritis indication.

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