Sun Pharma Q1 Preview: R&D spends to hit margins; profits may rise 10%

Brokerages expect a satisfactory quarter for Sun Pharma giant with a steady growth in the topline as well as bottomline on a year-on-year (YoY) basis, however, sequentially the bottomline may get hit

India’s biggest drugmaker, Sun Pharmaceuticals is scheduled to deliver its April-June quarterly earnings for the financial year 2024-25 (Q1FY25) on Thursday, August 1, 2024. 

Brokerages expect a satisfactory quarter for the pharma giant with a steady growth in the topline as well as bottomline on a year-on-year (YoY) basis, however, sequentially the bottomline may feel pressure. 

According to analyst estimates compiled by Business Standard, Sun Pharma may see its average revenue rise by 7.68 per cent year-on-year (YoY) to Rs 12,857 crore as against Rs 11,940 in the first quarter of FY24. Sequentially the topline may increase by 7.3 per cent compared to Rs 11,982 crore in Q4FY24

Moreover, the pharma major may register an average net profit of Rs 2,580 crore for the June quarter, against Rs 2,345 crore in Q1FY24, which translates to an increase of 10 per cent Y-o-Y for Q1FY25. 

On a quarterly basis, profits could decline by 6.8 per cent. The company reported a profit after tax (PAT) of Rs 2,756 crore in the December quarter of FY24. 

Revenue mix

Those at Kotak Institutional Equities believe that Sun Pharma will record a 7 per cent sequential growth in its US sales amounting to $511 million driven by a 12 per cent rise in sales from the ex-Taro business. 

Analysts attribute this growth to market share gain in drugs such as Ciprodex and Pentasa and higher Revlimid sales. 

On the other hand, Taro, the company’s US subsidiary, is expected to see a 4 per cent quarter-on-quarter decline in revenues, the brokerage firm said. 

For the domestic business, the company is expected to log a 10 per cent year-on-year rise, while a 20 per cent growth is on cards for the global specialty business to the tune of $237 million. Growth in the global specialty business is expected from drugs such as Ilumya, Cequa, and Winlevi, analysts at Nuvama Institutional Equities said. 

Margins on hold

Analysts say that Sun Pharma’s earnings before interest, tax, depreciation and amortisation (Ebitda) margins may get hit by increased R&D spending, with Ebitda margins expected to decline by 110 basis points year-on-year to 26.8 per cent, while a 3 per cent year-on-year growth in Ebitda.

Further analysts at BNP Paribas say that slower-than-expected scale-up of specialty sales and regulatory hurdles will be key downside risks to watch out for. 

Analysts at InCred Equities have a ‘Hold’ rating for Sun Pharmaceuticals with a target price of Rs 1,665. 

On the other hand, analysts at Centrum are bullish on the pharma major with a target price of Rs 1,740 with ‘Add’ call on its stock. Meanwhile, those at Kotak advise to ‘Add’ the counter with fair value of Rs 1,630.

Furthermore, among the key factors to watch for the street will include progress on regulatory issues at Mohali and Dadra facilities, updates on potential launch pipeline over the next 12-18 months and outlook on R&D spend for FY25/FY26.