Drugmaker Sun Pharmaceutical Industries is all set to release its April-June quarter earnings for FY25 on August 1. While the company's steady sales in the US as well as domestic markets is expected to aid its profit growth, increased research and development costs will likely weigh on its margins.
According to a Moneycontrol poll of 13 brokerages, Sun Pharma's revenue is pegged to grow slightly more than 8 percent to Rs 12,904 crore in the first quarter of the current fiscal, up from Rs 11,941 crore recorded in the same period a year ago. Net profit is likely to rise 27.5 percent to Rs 2,579
crore as against Rs 2,023 crore in the year-ago period.
Brokerages on the Street are spread across the place when it comes to profit growth expectations for Sun Pharma, with the most optimistic ones forecasting as much as 43 percent on year growth and the most pessimists predicting an 18 percent increase.
Among brokerages, Elara Capital has forecast the strongest profit growth for Sun Pharma, backed by hopes of a strong show in the US market due to its specialty products and in the domestic market, driven by its presence chronic therapies.
In contrast, HDFC Securities, which projected the weakest growth estimates, anticipates the profit growth to moderate due to increased spending towards R&D. Sun Pharma had guided that its R&D expenses will take up 10 percent of its revenues in FY25, more than the 6-7 percent allocated in the previous fiscal.
What factors are driving the earnings?
Analysts expect Sun Pharma to deliver strong sales in its US market backed by hopes of higher contribution from blockbuster cancer drug Revlimid and a ramp-up of supplies of bowel medicine Pentasa from its Mohali plant. In the domestic market, expectations of the company beating industry growth are high, driven by Sun Pharma's strong presence in the chronic therapies segment.
Steady US sales: The easing of regulatory hurdles at Sun Pharma's Mohali unit is expected to aid the company's sales in the US market. Incred Equities also believes that a decline in Sun Pharma's US generics business is likely to be arrested with market share gains in Ciprodex and Pentasa.
Moreover, an increase in revenue from its US specialty business, led by prescription volume ramp-up for Ilumya, Cequa and Odomzo along with positive seasonality is also likely to drive growth. Meanwhile, Philip Capital also expects contribution from Revlimid to rise to $70 million in Q1FY25, up from $60 million in Q4FY24 due to a ramp-up in sales of the drug.
Industry beating domestic growth: Analysts at Nomura expect Sun Pharma's India formulation is likely to grow slightly ahead of the broader market. "We expect its large chronic presence and sales force expansion in the recent past to drive on year growth," Nomura said.
Margin moderation: Despite healthy sales growth across key markets, Sun Pharma's margins are still expected to moderate on year due to higher R&D spends. The management had already guided for a higher R&D allocation in its previous earnings call, aimed to ramp-up its specialty portfolio.
In addition to that, higher overhead costs due to remediation and specialty drug launch expenses are also likely to further weigh on the drugmaker's margin profile. Likwise, a poll of 10 brokerage estimates conducted by Moneycontrol pegged the company's EBITDA margin at 26.7 percent for Q1, lower than the 27.9 percent reported in the year ago period.
What to look out for in the quarterly show?
Investors would be eager to watch out for the company's actual R&D expense in the quarter gone by. In addition, they would also be on the lookout for any sort of margin guidance from the management for FY25, given that higher R&D spending will put pressure on margin through the fiscal.
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