Pick of the Week: Sun Pharma

Sun Pharma is the largest pharma company in the domestic market and leading Specialty generic pharma company in the world. Its Specialty business has been growing at strong pace in the last 2-3 years. It is on track to cross sales of US$ 1.5 billion in the medium term. US generic pharma business model in the US is undergoing a gradual shift and companies with specialised R&D skillsets would be able to tide over the transformation better.

In the domestic formulation business, the company has strong portfolio in chronic and sub-chronic segment. It has leadership position in few therapeutic areas such as Cardiac, CNS, Gastro, Anti-diabetic, Pain/Analgesics etc. Company has 32 brands in top-300 brands in the IPM. We estimate 12% CAGR in domestic formulation sales over the next 2 years. Sun Pharma has about ~12% of its domestic formulation product portfolio under NLEM which is relatively lower than its peers such as Alkem, Zydus Lifesciences, Cipla and Lupin.

R&D investment is likely to increase for specialty business, which may impact profitability in the near term. Management has guided for higher R&D expenses at 7-8% of sales for the medium term. We remain positive on Sun’s long-term outlook considering its strong India franchise and scale-up in the specialty business. Sun Pharma has approval for 550 products and 116 ANDAs await US FDA approval. Price erosion in the business has softened to single digits while dependence on Halol plant is significantly lower now. Given that branded generics contribute over 60% of revenue and substantially higher to EBITDA, the relative impact from any negative surprise in US generics may not materially dent Sun’s earnings.

Company has paid off debt worth US$ 1.3 billion in the past 36 months and now the B/S is very strong with net cash of US$ 3.2 billion as of Dec-2025. Domestic formulation and US business would be the key driver for earnings in the medium term.  Earlier there was high double digit price erosion and now it has come down to high single digit.

Global Specialty business contributed to ~20% of overall sales as against 11% in FY21. Company has a portfolio of around 30 products in the Specialty segment. We remain positive on the stock on the back of net cash rich B/S, leadership position in domestic formulation space, superior margin profile, and frontrunner in Specialty business.

Over the past few years, Sun Pharma has made significant strides in transforming itself into Global Specialty player with series of acquisitions and ramp up of its key assets such as Ilumya, Winlevi etc. Company is one of the leader in few of the therapeutic areas such as CNS, Cardiac, Anti-diabetic etc. in the domestic formulation market. Branded generics ensure steady cash flow while Sun is ahead of most of its India peers in the US specialty race. Sun’s specialty business revenue is growing on the back of traction in key assets such as Ilumya, Winlevi and Cequa. Company has acquired Concert Pharma to gain access to NCE drug deuruxolitinib, which is used in treatment of alopecia areata (for which there is significant unmet need).

Sun has been launching 50-60 products annually each year in the last 3-4 years and also increased medical representative (MR) count by significantly for better penetration in metros and tier-1 cities. We expect domestic formulation business to register CAGR of 12% while US business is likely to see ~9% growth over FY25-28E. We estimate Revenue/EBITDA/PAT to register CAGR of 10%/11%/13% over FY25-28E.

We feel that investors can buy Sun Pharma in the band of Rs 1781-1814 and add more on declines to Rs 1645-1664 (25.5x FY28E EPS) for

base case target of Rs 1933 (~29.5x FY28E EPS) and bull case target of Rs 2052 (31.5x FY28E EPS) over the next 4 quarters.