BackBetter specialty portfolio prospects help Sun Pharma catch up
Sun’s specialty products range saw softer sales during the June quarter after having seen decent traction till the March quarter. Global specialty sales had declined 38% sequentially during Q1
PremiumSun Pharmaceutical Industries Ltd shares, after underperforming for most part of the year, are now trying to play catch-up. The Street gaining confidence in the firm’s specialty products range in the US has meant the stock has gained about 25% from end-October lows. It should be noted that most market laggards have risen by a similar magnitude in the period, and are part of the catch-up rally.
Sun’s specialty products range saw softer sales during the June quarter after having seen decent traction till the March quarter. Global specialty sales had declined 38% sequentially during Q1. Nevertheless, the gradual pickup thereafter has meant that the specialty sales almost normalized by the end of Q2.
In November, the management indicated that Sun had achieved pre-pandemic levels of sales in psoriasis treatment Ilumya, ophthalmology product Cequa and oncology drug Odomzo in the US. Sales of derma products nevertheless had remained slow and were below pre-pandemic levels, impacting recovery in dermatology product Levulan.
Analysts at JM Financial Institutional Securities Ltd, however, say that they see multiple drivers of a sustained earnings momentum, including Sun’s specialty portfolio reverting to its normalized growth trajectory with prescriptions in Ilumya and Cequa now exceeding pre-covid levels.
Meanwhile, the company’s investment phase on most of speciality products that required high R&D expenses too is behind. With focus shifting to return generation from these products, earnings should pick up pace.
The company, however, will have to take care of rising competition in its key products like Cequa and Ilumya. Psoriasis biologic drugs by competitors are expected to be launched in 2021.
Meanwhile, Sun is yet to see the resolution of regulatory issues related to its Halol plant in Gujarat. Also note that the company had seen tepid 1% year-on-year India business growth during the September quarter. The high single-digit growth in the chronic portfolio helped as acute products saw impact of low footfall in clinics. The pickup in acute products now should augur well for Sun’s overall India business growth.
Improvements in US and India business sales that account for most of earnings should mean better earnings henceforth. Gross margin expansion, aided by steady domestic and specialty products growth, and the end of negative operating leverage post break-even in key specialty assets by FY22 should aid Ebitda (earnings before interest, tax, depreciation and amortization) margin expansion of 670bps over FY20-23, say analysts at JMFL.
Meanwhile, all will be eyeing growth of the company’s US subsidiary Taro. Taro had seen significant growth impact due to price erosions in the US during the past few years. The stock, now priced at ₹570.75, is trading at 18.7 times one-year forward earnings estimates, which is a near 15% discount to historical trading range.
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