Hold Sun Pharma; target of Rs 775: Emkay Global Financial

Emkay Global Financial's report on Sun Pharma

We maintain Hold rating on the stock as we believe the current valuations limit the upside potential in view of near-term headwinds such as 1) potential increase in R&D expense, 2) reversal of Covid and seasonal product sales in India and 3) increase in S&M costs. Q1 revenue/EBITDA/PAT beat our expectations by 3%/11%/33%. The revenue beat was driven by higher revenue in India, EM and the RoW businesses. The EBITDA beat was driven by slightly better gross margins and lower-than-expected other and R&D expenses. Global specialty sales of US$157mn included a milestone payment of US$10mn related to two specialty products. Excluding that, specialty sales were flat qoq. QoQ growth in Ilumya and Cequa was offset by Abosrica genericization and supply issues in Levulan.

Outlook

The stock is trading at a 1-year forward P/E of ~25x, which is largely in line with the historical average. We value SUNP at a 21x P/E on our Dec’23E EPS to arrive at a core business value of Rs750/share and add NPV/share of Rs25 for SCD-044 and gRevlimid.

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