Motilal Oswal neutral on Sun Pharma

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26 Aug, 2025 12:21

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Motilal Oswal has maintained neutral rating on Sun Pharma with a target Rs 848, in its February 11, 2013 research report.
 
“Sun Pharma reported 33% sales growth to INR28.5b (est INR26.7b), a 31% EBITDA growth to INR12.6b (est INR10.4b) and 32% PAT growth to INR8.81b (est INR7.72b). It reported a one-time severance cost of INR238m pertaining to employees at DUSA. EBITDA growth was led by: 1) strong growth for Taro, 2) one-off supplies of Doxorubicin to the US and 3) favorable currency. We estimate one-offs contribution (mainly Doxorubicin) at INR1.58b to sales, INR807m to EBITDA and INR570m to PAT in 3QFY13.”
 
“Adjusted for one-off contribution, we estimate core top line at INR26.94b (v/s est INR24.75), core EBITDA at INR11.8b (v/s est INR9.4b) and core PAT at INR8.24b (v/s est INR7b). Core EBITDA margin at 43.8% (flat YoY) was above 38% est. Core performance was above estimates and was led mainly by strong performance at Taro. Sun and Taro have announced the termination of merger agreement over inability to come to an agreement over the fair price of Taro's minority stake. Sun's management indicated that it is confident of managing the business at Taro as usual. While Taro's improved operations will continue to consolidate on Sun's books, the latter can now utilize the available cash surplus to pursue other value-enriching acquisitions.”
 
“We have upgraded core EPS for FY13E/14E/15E by 13%/4%/2%. This is to reflect (1) strong growth in Taro's operations for 3QFY13 which will gradually normalize in FY14 and (2) benefit of consolidation of DUSA and URL Pharma from 4QFY13 onwards. Based on our revised estimates, the stock is currently valued at 24.4x FY14E and 22.1x FY15E core EPS. While we are positive on Sun's business outlook, rich valuations have tempered down our bullishness. Reversal in profitability at Taro, low profitability of recent acquisitions and increased tax outgo for FY13 are potential downsides. Maintain Neutral with a TP of INR848 (25x FY15E EPS). Inorganic initiatives (cash of over USD1b) are key risk to our rating,” says Motilal Oswal research report.

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