 "Sun Pharma")
Domestic brokerage Motilal Oswal Financial Services sees 26 per cent upside in Sun Pharmaceuticals (Sun Pharma) as it remains upbeat on the pharmaceutical giant's specialty drug pipeline. The brokerage has reiterated 'Buy' rating on the stock with a target price of Rs 1,870 per share.
Sun Pharma, the brokerage said, is building an interesting specialty pipeline (under development) for addressing patient’s needs in areas of dermatology, ophthalmology, and onco-dermatology.
It has enrolled nearly 950 patients for the psoriatic arthritis treatment using Ilumya in phase-III clinical trials. Additionally, Sun Pharma is yet to submit the study protocol for phase-II and phase-III clinical trials of GL0034 and MM-II drug, respectively.
Going ahead, the brokerage anticipates the specialty portfolio to register 20 per cent compound annual growth rate (CAGR) over FY24-26.
“We are factoring 19 per cent earnings CAGR) over financial year 2024-2026 (FY24-26) on the back of 12 per cent/13 per cent sales CAGR in domestic formulation (DF)/emerging markets (EMs), 18 per cent sales CAGR in specialty portfolio, and 18 per cent CAGR in R&D spent,” Motilal Oswal said in a note.
At 11:45 am, shares of Sun Pharmaceuticals were trading 0.41 per cent higher at Rs 1,489.80, as compared to 0.39 per cent rise in the S&P BSE Sensex.
R&D on a rise
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Sun Pharma, according to Motilal Oswal, has the highest research and development (R&D) spend compared to the peers on an absolute basis, due to efforts taken toward building specialty pipelines.
However, as a percent of sales, the R&D expenditure averages at 6.3 per cent for 9MFY24, which is in line with the average of peer companies under the brokerage's coverage. Glenmark, MOFSL said, has the highest R&D spend at 10.5 per cent, attributable to its investments in novel drugs.
Motilal Oswal forecasts Sun Pharma’s overall R&D expenditure to register an 18 per cent CAGR over FY24-26, on the back of the advancement of products under clinical trials, particularly, Ilumya/MM-II/GL0034.
Superior execution of domestic formulations
The second factor for a bullish outlook is Sun Pharma's robust brand franchises in the developed market and superior execution in the DF segment.
During FY21-23, Sun Pharma introduced new launches at an annual average rate of 91. However, the pace of new launches has been lower at 46 in 9MFY24, bringing down growth contribution from new launches to 2 per cent vs. 3 per cent at industry level.
MOFSL expects the DF business to register 12 per cent CAGR over FY24-26, on the back of the launch of specialty drugs, in licensing opportunities, and improving FULL FORM (MR) productivity
Investment strategy
Factoring in the above triggers, Motilal Oswal values Sun Pharma at 30x 12M forward earnings.
Despite some delays in the clinical trial processes of Ilumya (additional indication), MM-II, and GL0034, MOFSL said, the innovative/discovery pipeline continues to be the most promising within the India listed space.
"Due to regulatory issues at Halol/Mohali/Dadra plant, the new approvals would be adversely impacted. However, despite these issues and ongoing price erosion, Sun Pharma has been able to sustain the sales run-rate of the US generics segment on the back of new launches," it said.
