Prabhudas Lilladher reaffirms its "Buy" stance on Sun Pharmaceutical Industries Ltd. (SUNP), revising the target price to Rs.2,100 from Rs.1,885. The revision is driven by SUNP’s robust specialty sales, new collaborations in the dermatology space, and resilience in emerging markets. Sun Pharma’s decreasing reliance on generics in the U.S. and increased focus on specialty and domestic segments enhance its growth outlook. The company’s ongoing investments to strengthen its specialty pipeline are expected to bolster long-term growth.

Investment Summary

Target Price: Rs.2,100
Current Market Price (CMP): Rs.1,903
Upside Potential: +10%
Rating: Buy
Sector: Pharmaceuticals

Financial Performance for Q2FY25

Revenue Growth: Q2FY25 revenues rose by 9% YoY, reaching Rs.133 billion, aided by the company’s global specialty and generic Revlimid (gRevlimid) sales.
EBITDA Performance: EBITDA grew 19% YoY to Rs.38.1 billion, with EBITDA margins at 28.7%, up 230 basis points YoY, mainly due to a higher gross margin and controlled R&D expenditure.
Profit After Tax (PAT): PAT increased 19% YoY, amounting to Rs.29 billion.

Specialty and Global Expansion

Specialty Growth: Specialty sales surged by 19% YoY to $286 million, driven by product demand in dermatology and oncology.
New Collaborations: SUNP partnered with Philogen for a late-stage dermatology product, broadening its specialty pipeline.
Emerging Markets Focus: Sales in emerging markets increased by 5% YoY, supported by growth in key markets such as Brazil, South Africa, and Russia.

Domestic Market and Product Pipeline

India Formulations: Domestic formulation revenues rose by 11% YoY, propelled by new product launches and market share gains across therapeutic areas.
Specialty Pipeline Development: SUNP is preparing to launch its specialty product Leqselvi, which recently received U.S. approval but faces legal challenges that may delay market entry until 2026.
Ongoing Trials: Ilumya, a psoriatic arthritis treatment, is in Phase 3 clinical trials, with key data expected by H2CY25.

Cost Optimization and R&D Focus

R&D Expenditure: R&D spending was reduced to Rs.8 billion, or 6% of sales, as the company restructured its clinical trials timeline.
Operational Efficiency: Gross margins improved to 79.7% due to better product mix and increased specialty sales.
Cash Position and Investments: SUNP holds a strong cash reserve of $2.6 billion, enabling it to pursue acquisitions and pipeline expansion.

Revised Valuation and Future Outlook

Prabhudas Lilladher values SUNP at 35x its FY26 estimated earnings, resulting in a target price of Rs.2,100. This upward revision reflects the company’s strategic shift toward specialty products, resilience in emerging markets, and expanding domestic footprint.

Conclusion: Buy for Strong Specialty Growth and Diversification

With its revised target price of Rs.2,100, Prabhudas Lilladher endorses a "Buy" on Sun Pharmaceutical, emphasizing its strong specialty segment growth, robust cash flow, and geographic diversification. Investors can anticipate a 10% return over the next year as the company solidifies its market position in the global pharmaceuticals arena.