Sun Pharma Powers Through Q1 with Strong Profits Despite Challenges in US Sales and Taro Performance

On August 3, Sun Pharma announced its financial results for the first quarter of FY24. The projections suggest a moderate net profit for the company during this period. The company's earnings are likely to be affected by various factors, including stagnant growth for Taro Pharma, weak sales in the US generic segment due to restrictions at manufacturing facilities, increased research and development (R&D) expenses, and remediation charges.

Analysts predict that Sun Pharma's Q1 net profit may experience a slight decline of 0.15% to Rs 2,058 crore (USD 248.41 million) compared to Rs 2,061 crore (USD 248.78 million) reported in the previous year. However, on a sequential basis, it is expected to be around 4% higher, as per the average of seven brokerage estimates. Revenue is projected to rise by 7.5% year-on-year (YoY) to Rs 11,573 crore (USD 1.3 billion), with a 6% increase on a quarter-on-quarter (QoQ) basis.

Although Taro Pharma reported a 1.4% revenue growth to $159 million for the June quarter, its net profit declined by 29% to $10 million. However, Sun Pharma's sales in India are expected to grow steadily at a rate of 7-10% YoY, which, along with strong US specialty growth, will offset the weakness in the generic segment. Analysts predict YoY growth rates of 31.6% and 25% for Sun Pharma's US specialty business, driven by the sales of Winlevi, Ilumya, and Cequa.

On the flip side, the company may face challenges in the generic segment, including volume and market share erosion for gDoxil and gAmbisome. The import alert at the Halol facility and non-compliance letter at the Mohali facility are expected to continue impacting the US generics business in Q1. Consequently, US sales could decline by up to 4% to $412 million (according to Kotak Institutional Equities) or $441 million (according to PhllipCapital), compared to $420 million in Q1FY23.

Analysts also anticipate a decline in Ebitda margin for Sun Pharma, with higher R&D expenses contributing to a 140-basis point QoQ decline and a YoY decline of 100 basis points. Gross margin is expected to normalize to 76% (a fall of 340 basis points QoQ) after being abnormally high in the previous quarter. Adjusted for exceptional gains in the previous quarter, net profit is projected to fall by 15% QoQ in Q1FY24.

Nirmal Bang estimates Sun Pharma's Ebitda to be Rs 3,111 crore, while Systematix analysts expect it to be Rs 2,694 crore. In the same period last year, Sun Pharma reported an Ebitda of Rs 2,884 crore.