Shares of Sun Pharmaceutical Industries hit a new high of Rs 1,952, as they rallied 3 per cent on the BSE in Friday’s intra-day trade in an otherwise subdued market. The rally in the stock came after UBS gave a ‘Buy’ rating on the stock with a target price of Rs 2,450 per share.
Studies also confirmed dose optimisation, with results demonstrating greater response with 8 mg tablets twice-daily as compared to higher, once daily dosing, the company said in an exchange filing.
In the past one month, Sun Pharma has outperformed the market and rallied nearly 10 per cent, as compared to 5 per cent rise in the BSE Sensex. The stock has bounced back 42 per cent from its June month low of Rs 1,376.75 on the BSE.
Analysts at UBS expect the company’s specialty portfolio revenues to double over the next four years to over $2 billion. Operating leverage benefits are high as the doubling of revenue does not require a meaningful addition in the sales force.
For Taro, UBS expects it to make a $80-100 million addition to Ebitda, driven either by the turnaround or divestment of loss-making product, ProActiv, and sharp reduction in high R&D of $60 million at Taro.
Consolidated earnings before interest, tax, depreciation and amortisation (Ebitda) margins should expand 650bp over the next four years, resulting in a high consolidated EPS compound annual growth rate (CAGR) of 19 per cent over four years (on headline basis and 25 per cent EPS CAGR over FY25-27E for the core business).
This growth trajectory is the highest among large-cap peers and analysts expect Sun Pharma to trade at a higher valuation than peers in the context of slowing growth for others.
“Our price target implies a FY27E PE of 38x, higher than the historical range. However, in the context of slowing growth for Indian peers, significant margin expansion even beyond FY27E (only half of the 650bp margin is factored in up to FY27E) and the potential to strengthen the specialty pipeline with new molecules (based on ample cash and FCF), we are comfortable valuing Sun Pharma at a premium to peers. The near-term catalyst is the launch of Deuruxolitinib in the next,” UBS said.
Integration of Taro could improve profitability in the business too, the brokerage firm had said in its Q1 result update.
Motilal Oswal Financial Services said they remain positive on Sun Pharma on the back of a rising contribution from specialty products through commercial traction, progress on development pipeline, and outperformance versus the industry in branded generics segment. The brokerage firm has a ‘Buy’ rating on the stock with a target price of Rs 1,980 per share.
First Published: Sep 27 2024 | 2:55 PM IST
