Prabhudas Lilladher has reaffirmed a BUY rating for Sun Pharmaceutical Industries with a revised target price of Rs 2,275. The pharmaceutical giant reported robust Q3FY25 results, led by specialty and domestic formulation sales. Adjusted EBITDA rose 20% year-over-year (YoY) despite higher R&D expenses aimed at expanding its specialty pipeline. With a diversified portfolio, growth in key markets, and strong operational margins, Sun Pharma is positioned for continued expansion. However, litigation risks and elevated expenses remain challenges for the near term.

Specialty Sales Drive Revenue Growth

Q3FY25 revenues climbed 11% YoY to Rs 137 billion, supported by strong sales from specialty formulations and milestone income.

Specialty segment: Adjusted for milestone income, global specialty sales surged 17.5% YoY to $325 million, contributing significantly to the overall growth.
Domestic formulation: Domestic sales saw a robust 14% YoY increase, driven by new product launches and increased market share in key therapies such as cardiology and diabetes.
International markets: The RoW (Rest of World) markets expanded by 17%, and emerging markets (EMs) registered 12% YoY growth.
API sales experienced a 22% YoY rise, reflecting strong demand in the segment.

Operating Margins and Profitability

The company's operational performance remained steady despite external pressures.

Adjusted EBITDA: Reached Rs 38.1 billion, marking a 20% YoY increase, with operating margins stable at 28.7%.
Gross margins: Adjusted for milestone income, gross margins were at 77.6%, consistent with last year's levels.
Reported PAT: Net profit surged 38% YoY to Rs 34 billion, with EPS at Rs 13 per share.
Cost controls, including lower other expenses and steady R&D spending, contributed to sustaining margins despite challenges.

Expansion of Product Pipeline and Market Strategy

Sun Pharma is focusing heavily on specialty business expansion, especially in the U.S. and key international markets.

New launches: Twelve products were introduced in the domestic market, while four generics were launched in the U.S.
Pipeline updates: The company awaits a court ruling for the launch of Leqselvi, a key specialty drug. Other specialty products such as Ilumya, Cequa, Odomzo, and Winlevi continue to perform well globally.
In Japan and China, where the generic market faces pricing pressures, Sun Pharma is focusing on expanding specialty offerings, particularly dermatology and ophthalmology therapies.

Challenges and Risks

While the quarterly performance was strong, some risks and challenges were highlighted in the report:

Litigation risk: Delays in the launch of Leqselvi due to ongoing litigation could affect future specialty sales.
Investment phase: R&D spending is projected to remain elevated through FY26 as Sun Pharma invests in specialty pipeline development.
Despite these concerns, the company's diversified portfolio and strong operational execution provide resilience against external headwinds.

Target Price and Valuation

Prabhudas Lilladher revised its target price for Sun Pharma to Rs 2,275, implying an upside potential from the current price of Rs 1,744.

The valuation is based on a 35x FY27E EPS multiple, reflecting confidence in long-term growth prospects and operational efficiency.

Key Financial Metrics

Here is a snapshot of Sun Pharma’s financial performance:

Investment Outlook

With strong earnings visibility, robust specialty sales growth, and strategic market positioning, Sun Pharma remains a top pick among large-cap pharmaceutical stocks. However, investors should remain cautious about litigation risks and R&D-related expenses.