Sun Pharma Q2 Preview: Profit may rise by 19%, R&D spends to impact margins

Sun Pharma, the largest Indian pharmaceutical company, is scheduled to deliver its financial results for the second quarter (July-September) of fiscal year 2024-25 (Q2FY25) on Monday, October 28. 

 

Analysts expect Sun Pharma to register double digit growth in the topline and bottomline driven by specialty sales, however, the margins may be impacted due to higher research and development spends that the company is making to strategically increase its specialty business. 

 

According to brokerages tracked by Business Standard, Sun Pharma is expected to report an average net profit Rs 2,829 crore in Q2FY25, a rise of 19.1 per cent year-on-year (Y-o-Y) against Rs 2,375 crore in Q2FY24. Meanwhile profits may rise by 6.6 per cent quarter-on -quarter, compared with a profit after tax (PAT) of Rs 6,368 in the June quarter of FY25. 

 

 

Sun Pharma’s average revenue will potentially increase 9.93 per cent Y-o-Y to Rs 13,403 crore as against Rs 12,192 crore in Q2FY24. Sequentially revenues may rise by 5.93 per cent. The pharma company registered revenues of Rs 12,652 crore in the June quarter of FY25. 

 

Moreover, here’s what key brokerages expect from Sun Pharma Q2 results:

 

Kotak Institutional Equities: Analysts at KIE expect Sun Pharma to report overall sales growth of 8 per cent year-on-year and 4 per cent quarter-on-quarter for 2QFY25. They project US sales to reach approximately $482 million, a 3 per cent rise Q-o-Q, driven by higher specialty sales, a slight uptick in Revlimid sales, and a continued ramp-up in Pentasa supplies from Mohali. 

 

The global specialty business is expected to log a sales growth of 4 per cent Q-o-Q, to $277 million, supported by increased prescription volumes for Ilumya, Cequa, Winlevi, and Odomzo. In India, they expect a 10 per cent Y-o-Y growth, while the Rest of the World and Emerging Markets (ROW/EMs) are projected to see a 4 per cent Y-o-Y rise. 

 

Furthermore, KIE analysts forecast an improvement in gross margin by 30 basis points Q-o-Q , reaching 79.2 per cent. R&D expenses are estimated to be 7.6 per cent of sales for the quarter, reflecting a rise of 130 basis points Q-o-Q. On the Ebitda front, they anticipate a 12 per cent Y-o-Y growth to Rs 36.1 billion, although they expect the Ebitda margin to decline by 150 basis points Q-o-Q to 27.4 per cent due to increased R&D spending.

 

HDFC Securities: Analysts at HDFC Securities anticipate a marginal Q-o-Q improvement in Sun Pharma’s US business, driven by steady traction in the specialty segment and consistent sales from Taro. However, this growth may be offset by supply challenges at key plants in Halol and Mohali. 

 

In India, the analysts expect an 11 per cent Y-o-Y growth. They forecast a gross margin expansion of 136 basis points Y-o-Y; however, this improvement may be constrained by rising costs, particularly an increase in R&D expenses, which could limit the expansion of the Ebitda margin.

 

Nuvama Institutional Equities: Analysts at Nuvama expect Sun Pharma’s revenue to grow by 11.4 per cent year-on-year, driven by a 13 per cent increase in the domestic business. US revenue is projected at $484 million, with the specialty segment contributing $277 million. R&D spending is estimated at 6.9 per cent of sales, with nearly half allocated to specialty products. Ebitda and PAT are anticipated to grow by 20 per cent and 25 per cent year-on-year, respectively, with Ebitda margins at 28 per cent for Q2FY25.

 

PhillipCapital: Analysts at PhillipCapital project that pharma major will report an 11 per cent sales growth, driven by sustained double-digit growth in US specialty sales (+18 per cent Y-o-Y), a ramp-up in Revlimid sales ($60 million), and a 10 per cent increase in domestic formulations. 

 

Despite rising Revlimid sales, margins are expected to decline by 80 bps to 25.6 per cent, primarily due to a 330 bps increase in R&D expenses and higher costs associated with remediation and specialty drug launches, resulting in an 8 per cent increase in Ebitda. Overall, with steady operating performance and higher other income, earnings are anticipated to grow by 17 per cent year-on-year but decline sequentially.

 

BNP Paribas: Analysts at BNP Paribas anticipate that Sun Pharma will see marginal Q-o-Q improvement in US business revenue, reaching $470 million, with global specialty sales projected at $275 million. Domestic formulations revenue is expected to grow in high single digits quarter-on-quarter, while the Ebitda margin is forecasted to be at 28 per cent.