Sun Pharma stock rally

Sun Pharma Shares Hit New High: UBS Sees Major Growth Potential with a ₹2,450 Target Price

Shares of Sun Pharmaceutical Industries surged 3% on Friday to hit an all-time high of ₹1,952 during intra-day trading on the BSE. In an otherwise sluggish market, Sun Pharma stood out, fueled by a ‘Buy’ rating from UBS. The global brokerage firm has set a bullish target price of ₹2,450 per share, signaling strong growth prospects for the pharma giant.

What’s Behind the Optimism?

UBS forecasts that Sun Pharma is on the verge of its highest near-term growth, driven by significant operating leverage from its US specialty drug portfolio and margin expansion at its subsidiary, Taro Pharmaceuticals. This growth trajectory, UBS believes, will continue in the medium term, thanks to the ramp-up of Sun Pharma’s specialty drug pipeline.

But that’s not all. Sun Pharma’s latest data highlights new successes in clinical treatments, particularly for patients with severe alopecia areata. More than 5% of these patients reported improved hair satisfaction when treated with the company’s deuruxolitinib drug. Additionally, patients showed significant reductions in depression and anxiety by Week 24 of the treatment, making this a breakthrough in patient care. The company also noted better outcomes with the 8 mg tablets twice-daily regimen, compared to a higher once-daily dose.

Stock Rally Amid Positive Momentum

Sun Pharma has been outperforming the market in recent weeks, with its stock rising nearly 10% over the past month, compared to a 5% rise in the BSE Sensex. The stock has rebounded an impressive 42% from its June low of ₹1,376.75. UBS analysts believe that the consensus still underestimates the operating leverage benefits of Sun Pharma’s specialty portfolio in the US, and the substantial margin expansion at Taro.

A Closer Look at the Numbers

UBS analysts expect Sun Pharma’s specialty portfolio revenues to double in the next four years, surpassing $2 billion. And here’s the kicker—this doubling in revenue won’t require a significant increase in the sales force, making it a highly efficient growth driver. For Taro, UBS anticipates a $80-100 million boost to EBITDA, driven by the turnaround or divestment of loss-making products like ProActiv, and a sharp reduction in its R&D costs, currently at $60 million.

Margin Expansion: The Key to Growth

Sun Pharma’s consolidated EBITDA margins are expected to expand by 650 basis points (bp) over the next four years, leading to a high consolidated EPS compound annual growth rate (CAGR) of 19%. For the core business, the EPS CAGR could reach as high as 25% between FY25 and FY27, which is the highest growth rate among large-cap pharma companies.

Given this stellar growth trajectory, UBS expects Sun Pharma to trade at a higher valuation compared to its peers, who are currently facing slower growth prospects.

Why Sun Pharma Deserves a Premium Valuation

“Our price target for Sun Pharma implies a FY27E price-to-earnings (PE) ratio of 38x, which is higher than the historical range,” UBS said. However, in light of slowing growth among other Indian pharmaceutical companies and Sun Pharma’s significant margin expansion potential, UBS is comfortable assigning Sun Pharma a premium valuation.

Sun Pharma’s specialty pipeline is poised for further strengthening with new molecules, backed by its ample cash reserves and free cash flow (FCF). UBS believes that even beyond FY27, Sun Pharma will continue to see margin expansion, only half of which is currently factored in.

The launch of Deuruxolitinib—a key treatment for alopecia areata—serves as a near-term catalyst, promising to drive Sun Pharma’s growth even further.

Conclusion:

Sun Pharma’s latest stock rally, fueled by UBS’s ‘Buy’ rating and a ₹2,450 price target, is a clear indication of the company’s robust growth potential. With its specialty portfolio set to double revenues and significant margin expansions on the horizon, Sun Pharma is positioned to outpace its peers in the Indian pharmaceutical sector. Sun Pharma stock rally, The upcoming launch of Deuruxolitinib further cements Sun Pharma’s trajectory as a leader in specialty drugs, making it a stock to watch closely in the coming years.

FAQs:

1.Why did Sun Pharma’s stock hit a new high?

A. The stock surged after UBS gave a ‘Buy’ rating with a target price of ₹2,450 per share, expecting strong growth in Sun Pharma’s specialty drug portfolio.

2.What are the key growth drivers for Sun Pharma?

A. UBS cites operating leverage benefits from Sun Pharma’s US specialty portfolio and margin expansion at Taro Pharmaceuticals as key growth drivers.

3.What new drug data has Sun Pharma released?

A. Sun Pharma’s new data shows improved hair satisfaction in patients with severe alopecia areata taking deuruxolitinib, with significant mental health improvements.

4.How has Sun Pharma performed compared to the market?

A. In the past month, Sun Pharma’s stock has risen nearly 10%, outperforming the 5% rise in the BSE Sensex.

5.What is UBS’s price target for Sun Pharma?

A. UBS has set a target price of ₹2,450 for Sun Pharma, reflecting its strong growth potential and margin expansion.

6.What does UBS expect from Sun Pharma’s specialty portfolio?

A. UBS analysts expect revenues from Sun Pharma’s specialty portfolio to double in the next four years, exceeding $2 billion.

7.How will Taro Pharmaceuticals contribute to Sun Pharma’s growth?

A. Taro is expected to add $80-100 million to EBITDA, driven by either a turnaround or divestment of its loss-making product, ProActiv.

8.What margin expansion does UBS foresee for Sun Pharma?

A. UBS expects Sun Pharma’s consolidated EBITDA margins to expand by 650 basis points over the next four years.

9.Why is Sun Pharma expected to trade at a premium valuation?

A. UBS believes that Sun Pharma deserves a premium valuation due to its rapid growth, significant margin expansion, and strong specialty drug pipeline.