Buy Sun Pharma; target of Rs 670: HDFC Securities

HDFC Securities is bullish on Sun Pharma has recommended buy rating on the stock with a target price of Rs 670 in its research report dated November 14, 2018.

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November 16, 2018 / 16:36 IST

26 Aug, 2025 12:21

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HDFC Securities' research report on Sun Pharma

With the provision for Modafinil litigation liability to the tune of Rs 12bn, Sun Pharma (SUNP) reported a loss of Rs 2.2bn in 2QFY19. However, adjusted PAT at Rs 9.96bn was still 8% below our estimates due to a similar miss on top line. The inventory correction exercise resulted into a 16% fall in India revenues, along with slower than expected growth in the US (up 21%YoY) which led to 4%YoY revenue growth in 2QFY19 (8% miss). However, EBITDA margin remained flat QoQ at 22.1% as better product mix and favorable currency boosted gross margin to 74% despite a spike in other expenses on account of the specialty business.

Outlook

At CMP the stock is trading at 33.6x FY19E and 25.4x FY20E EPS, a ~15% premium to peers. With a significant part of revenues expected to come in from the branded business in 3-4 years, we believe the stock is likely to continue trading at a premium. An 8% miss on top line has led us to cut our estimates by ~3% for FY19-20E. Maintain BUY rating with a TP of Rs 670 (25x Sep’20E + Rs 40/sh option value for specialty).

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