Sun Pharma’s (SUNP) Q1FY22 income /EBITDA/ PAT beat consensus estimates by 11%/ 30%/ 40% as all corporations performed much better than expectations as Covid tailwinds had been backed by structural recovery.
We upgrade SUNP to ‘BUY’ as: i) Ilumya outperformance and Cequa’s powerful recovery to enable mitigate Absorica loss b) Winlevi enhance to derma portfolio to monetise Absorica salesforce c) gRevlimid launch in FY23, broad-based India development, Winlevi uptick and specialty acceleration to translate into 30%+ margin in FY24.
We raise FY23E EPS by 27% due to core enterprise improvement, gRevlimid and Winlevi. Raise several to 28x on consolidated EPS to account for close to-term specialty losses that yields revised SOTP-based TP of ₹950.
Q1FY22 takeaways — powerful all-round efficiency: 11% major-line beat as all corporations exceeded expectations. US at $380mn very best efficiency in nine quarters driven by Ilumya that mitigated Absorica generics effect. Ilumya doubled YoY as per secondary information. India, ex-Covid, grew in double digits. Gross margin declined slightly due to Absorica genericisation, but reduced employee expenses and opex handle ensured EBITDA margin beat that stood at 28.4%.
Unimpeded development ahead as specialty builds self-confidence: Barring Absorica genericisation that should really trough out in the next couple of quarters, SUNP is poised for constant development in the next 4-5 years as its specialty portfolio (Exhibit 3) led by Ilumya is on track to clock 20% CAGR Eli Lilly scrapping mirikizumab lessens possible competitors. While we acknowledge that Winlevi may perhaps face commercialisation hurdles, the throughput is most likely to be incredibly higher as no new investments are to be made.
Cequa has come to be the quickest developing molecule and we count on powerful development till FY23 and eventual plateauing as Restasis generics hit the market place. gRevlimid launch in H2FY23 should really provide comfort to US base enterprise. Recovery in the ex-Taro US enterprise, steady EMs and RoW development, strong domestic chronic enterprise and visible expense handle are most likely to provide comfort to base enterprise.
Outlook and valuations: Higher income visibility upgrade to ‘BUY’. We raise FY22/23E EPS by 11%/27% to aspect gRevlimid and Winlevi in our forecasts and margin expansion as specialty ramps up. Our target several on Dec 2022E EPS is 28x (from 25x) as specialty’s very best economics are most likely to be seen only in FY25/26. Raise TP to ₹950 (from ₹675) based on 28x Dec 2022E and ₹20 from gRevlimid.