Sun Pharma Q2 Preview: Favourable seasonality, robust specialty sales to keep earnings in the pink of health

Sun Pharma is slated to release its Q2 numbers on October 28.

India's biggest drugmaker Sun Pharmaceutical Industries is all set to report its earnings for the July-September quarter on October 28. Favourable seasonality and strong specialty sales is expected to aid a double-digit growth in the drugmaker's net profit. However, higher research and development spends, aimed at ramping up the company's specialty segment is likely to keep margin growth limited.

According to a Moneycontrol poll of ten brokerages, Sun Pharmaceutical Industries' net profit for the second quarter of FY25 is likely to come around Rs 2,911 crore, a growth of 22.5 percent over Rs 2,376 crore that it clocked in the same period last fiscal. Revenue is expected to grow a little over 9 percent to Rs 13,299 crore in Q2, up from Rs 12,192 crore from the corresponding quarter last year.

EBITDA margin is also expected to expand, however, the expansion is likely to be limited. According to the forecasts, Sun Pharma's EBITDA may scale up to 27.5 percent in the September quarter, as against 26.1 percent in the year ago period.

Earnings forecasts by analysts polled by Moneycontrol are seen in a rather narrow range, with the most optimistic estimate, rolled out by Systematix Shares and Stocks anticipating an over 38 percent surge in Sun Pharma's bottomline. On the flipside, the most pessimistic projection, given by Kotak Institutional Equities suggests an 11.5 percent rise in net profit.

What factors are impacting the earnings?

Sun Pharma is expected to deliver one of the strongest growth among large-cap pharma players, aided by the strong growth in its high-margin, low competition specialty segment and steady performance by its domestic formulations business.

Specialty sales: Sun Pharma's specialty business is likely to enjoy the benefit of a favourable seasonality which would help it deliver sales growth in mid-teens. Growth in this segment will be led by prescription volume ramp-up for Ilumya, Winlevi and Odomzo, and slightly offset by
lower market share in Cequa, Kotak Institutional Equities stated.

Domestic formulations: Rise in revenues will also be aided high single-digit/low double-digit growth in the domestic formulations business. Analysts at Systematix Shares and Stocks also anticipate Sun Pharma to outperform the 8 percent sales growth seen in the Indian pharma market during Q2. Nuvama Institutional Equities believes favourable seasonality and growing volumes will aid growth in domestic formulations.

Increased Revlimid sales: Another factor supporting Sun Pharma's growth in Q2 will be increased contribution from blockbuster cancer drug Revlimid. Systematix expects the drugmaker's US
business to benefit from expansion in Revlimid's market share during the quarter.

Limited margin expansion: Margin growth is likely to lag the growth in bottomline and topline sue to higher spend towards R&D. Sun Pharma had guided to allocate 10 percent of its total revenues in FY25 towards R&D for its specialty as well as generic businesses and aims at strengthening its product pipeline across various markets.

What to look out for in the quarterly show?

Analysts will closely monitor the R&D spends of the company in Q2 since it lagged behind its targeted spending in the previous quarter. Aside from that, analysts will also be focused on gaining updates on the launch of Sun Pharma's specialty drug Leqselvi, used to treat alopecia areata. The drug had received a nod from the US drug regulator but got caught in a preliminary injunction sought by US pharma company Incyte, which claims infringement of its patent, derailing its launch timeline.

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