Sun Pharma dips over 4% on weak margin growth expectation in FY25: Here’s what brokerages say

Sun Pharma's share price slipped 4.69%, reaching an intra-day low of Rs 1,467 on the NSE. (Photo: Bloomberg)

The shares of Sun Pharma plunged over 4% in the early trading session on Thursday, despite the company reporting a 34% jump in net profit year-on-year in Q4FY24 on Wednesday. The share price of Sun Pharma slipped 4.69% to an intra-day low of Rs 1,467 on the NSE.

Leading pharma player Sun Pharma reported a net profit of Rs 2,654 crore for the quarter ended March 2024 on Wednesday, marking a 34% increase from the Rs 1,984 crore reported in the same quarter last year.

Revenue from operations rose 10% year-on-year to Rs 11,983 crore in the fourth quarter, compared to Rs 10,931 crore a year ago. EBITDA for the fourth quarter was Rs 2,985 crore, with margins at 25% during the same period.

India formulations sales for the fourth quarter were Rs 3,707 crore, showing a 10% growth over Q4 last year and accounting for 31.4% of total consolidated sales for the quarter. For the full year FY24, sales of formulations in India increased by 9% year-on-year.

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US formulation sales for Q4FY24 stood at $476 million, registering a growth of 10.9% over Q4 last year and accounting for 33.5% of total consolidated sales for the quarter. Formulation sales in the US for the full year FY24 were $1,854 million, up 10.1% over the same period last year.

Brokerages on Sun Pharma 

Motilal Oswal on Sun Pharma 

Motilal Oswal retains its FY25/FY26 estimates, valuing Sun Pharma at 30x 12-month forward earnings to arrive at a target price of INR 1,810.

The brokerage expects an 18% earnings CAGR over FY24-26, driven by a 12-13% sales CAGR in the Domestic Formulation (DF), Emerging Markets (EM), and ROW markets, a 9% sales CAGR in the US market, and a 220 basis points margin expansion.

According to a report by Motilal Oswal, Sun Pharma reported a slight miss at the operational level for Q4FY24 due to lower-than-expected sales in the ROW market and higher-than-expected operating expenses for the quarter.

Despite this, Sun Pharma surpassed USD 1 billion in sales in the global specialty segment for FY24, compared to USD 430 million in FY20, supported by enhanced product offerings and marketing activities in regulated markets.

The target action date of July 2024 for Deuruxolitinib is a key near-term trigger. Additionally, Sun Pharma has consistently outperformed the branded generics markets, providing healthy visibility for better earnings prospects.

JM Financials on Sun Pharma 

With a robust specialty outlook, domestic leadership, and a strong cash position, JM Financials maintains a ‘BUY’ rating with a March 2025 target price of Rs 1,655. Sun Pharma’s strong cash flows and potential access to Taro’s reserves allow for significant investments in the specialty segment, focusing on dermatology and eye care in the US.

According to a report by JM Financials, Sun Pharma’s management forecasts high single-digit revenue growth for FY25 but did not provide margin guidance. R&D spending is expected to rise to 8-10%, up from FY24’s 6-7%, as the specialty pipeline progresses.

The Deuruxolitinib launch is a key trigger, with no unanswered queries but potentially high launch costs. Q4 performance was strong, with the US, India, and Emerging Markets all delivering double-digit growth. Gross margin improvements were offset by higher R&D and promotional expenses, but low tax rates and higher other income led to a PAT beat.

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Global specialty sales grew 11% to USD 271 million, and gRevlimid sales increased to around $35 million. South Africa and Brazil drove a 17% growth in EM business, while Ilumya grew 21.7% YoY to USD 580 million.

Citi on Sun Pharma 

According to a report by Citi, Sun Pharma has been maintained with a ‘Buy’ rating and a target price of Rs 1,640. The Q4 numbers were in line with expectations, but the guidance suggests margin pressure in FY25.

While the company has margin levers, there is a possibility that margins may remain subdued in FY25. Consequently, the stock may face pressure in the near term.

However, Citi recommends buying as it believes the underlying business trend and medium to long-term margin expectations remain strong.

JP Morgan on Sun Pharma 

According to a report by JP Morgan, Sun Pharma has been maintained with an ‘Overweight’ rating and the target price has been increased to Rs 1,610 from Rs 1,600.

The strong performance in the specialty segment is driving growth in the United States. The key business continues to strengthen, and the company is now entering an investment phase.

JP Morgan will continue to monitor R&D spending, as the company has historically spent less than its guidance.

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