Shares of Sun Pharmaceutical Industries, which have given 20 percent returns to investors in the last one-year period, may rally another 18 percent, as the pharma major is well-positioned for growth due to several factors, said analysts at Motilal Oswal in a research report. Sun Pharma's shares were trading flat in Thursday's (June 15) late noon deals.
Analysts have maintained their 'buy’ rating on the counter with a target price of Rs 1,160 per share, suggesting a potential upside of 18 percent from the current market levels. The stock is up 5 percent in the last one month, while it fell 1 percent on a year-to-date basis. The company was commanding a total market capitalisation of Rs 2.37 lakh crore.
In terms of technicals, the 14-day relative stock index (RSI) was at 54.2, signalling that the counter is neither oversold nor overbought. Money Flow Index (MFI) stood at 75.3, implying that the stock may show pullback.
Sun Pharma shares have a one-year beta of 0.5, indicating very low volatility. The stock is trading higher than the 5-day, 30-day, 50-day, and 200-day moving averages.
"There is an increasing pace of prescription for drugs such as Ilumya or Winlevi; the company is making ongoing efforts to expand its specialty offerings; SUNP has achieved stronger-than-average growth in the domestic formulation (DF) segment; and despite a challenging macroeconomic situation, SUNP has been able to maintain its sales run-rate for US generics," said Motilal.
What's behind Sun Pharma's favourable position?
Sun Pharma's favourable position, as per analysts, is complemented by its attractive valuation of 24.7 times FY24 earnings or 21.8 times FY25 earnings, 9 percent below its five-year average and the five-year industry average of 25 times.
Despite the stock's flat performance for the past six months, Motilal believes that Sun Pharma is in a favourable position. Based on the substantial changes witnessed over the past two decades, analysts continue to maintain a positive outlook for the company.
"Sun Pharma has successfully transitioned from concentrating solely on domestic branded generics to incorporating US generics/exports to EM/ROW markets," Motilal said, adding that these moves have served as key growth drivers for the company.
Further, strong brand franchise in developed markets for innovative products in the specialty segment provides the company with a competitive edge over its peers.
"We expect 13 percent earnings CAGR (compound annual growth rate) over FY23-25, led by 20 percent/13 percent/11 percent sales CAGR in specialty/EM-ROW/DF segment," the note stated.
The margin expansion is expected to be gradual, up 30 basis point over FY23-25, as the brokerage expects increased R&D expenditure on multiple projects in the specialty segment.
Sun Pharmaceuticals reported a consolidated net profit of Rs 1,984.47 crore for the March 2023 quarter, against a loss of Rs 2,277.25 crore in the same period last year. The profit was, however, lower sequentially as it stood at Rs 2,166.01 crore in Q3FY23.
The company proposed a final dividend of Rs 4 per share for fiscal FY23, adding to a previously paid interim dividend of Rs 7.50 per share.
The revenue for the reporting quarter came in at Rs 10,726 crore, up 12 percent year-on-year, compared to Rs 9,560 crore in Q4FY22.
