Sun Pharma Shares: Analysts Anticipate Short-Term Pressure Post Q4

Following Sun Pharma's fourth-quarter earnings announcement, global brokerage firm, Citi, has maintained a 'Buy' rating on the stock with a target price of ₹1,640 per share. This represents a potential 5% upside from the stock's closing price on Wednesday, May 22nd. However, the brokerage anticipates the stock to face short-term pressure.

Citi reported that India's largest drug manufacturer, Sun Pharma, delivered a quarterly performance that met expectations. However, Citi's guidance suggests that Sun Pharma will face margin pressure during the 2025 financial year. Citi analysts noted that while Sun Pharma has levers to improve margins, they anticipate continued subdued margins in FY25. Despite the margin concerns, Citi remains optimistic about Sun Pharma's underlying business performance and its long-term margin expansion potential.

JPMorgan has reaffirmed its positive outlook on Sun Pharma stock, upgrading its target price to ₹1,610 from ₹1,600. The brokerage believes Sun Pharma is entering a period of increased investment, with its core businesses continuing to gain strength. While acknowledging Sun Pharma's history of underperforming on R&D spending relative to its own projections, JPMorgan plans to closely monitor this area going forward.

Nomura maintains a 'Neutral' rating for Sun Pharma, with a price target of ₹1,444 per share, indicating a potential downside of approximately 8%. Nomura highlights that Sun Pharma's Q1 FY23 earnings and FY25 guidance fell short of market expectations. The company's Q4 FY22 sales and EBITDA missed estimates by 5% and 4%, respectively. Nomura predicts that Sun Pharma's revenue growth will remain in the high single digits in FY25. According to Nomura, Sun Pharma's earnings momentum is currently stagnant due to increased investments in specialty products.

ICICI Securities assigned a 'Hold' recommendation to the stock, setting a target price (TP) of ₹1,530. Investors are advised to observe the progress of specialty product launches and R&D expenditure. Overall R&D spending is projected to increase to 8-10% in the future. The brokerage firm cautions that management's conservative revenue growth forecast of high single digits for FY25, combined with increased R&D spending, suggests that the current specialty product portfolio is nearing its peak and that the company plans to invest in new products.

In an interview with CNBC-TV18, CS Muralidharan, the Group CFO of Sun Pharma, attributed the projected single-digit growth for FY25 to the expansionary plans across all segments. Muralidharan acknowledged the company's inability to provide EBITDA guidance in recent years.

Sun Pharma shares have gained 30% over the last six-month period and risen 24% so far this year. On Wednesday, the Sun Pharma stock settled 1.50% higher at ₹1,564 apiece on the NSE. In a recent statement, Dilip Shanghvi, Chairman and Managing Director, emphasized that FY25 will be a crucial period for investment, particularly in US product launches and the global specialty business.

Sun Pharma, India's top pharmaceutical firm, reported a consolidated net profit of ₹2,654.6 crore in Q4FY24, representing a 33.7% increase over ₹1,984.5 crore in Q4FY23. The company witnessed a 10% year-over-year (YoY) growth in gross sales, reaching ₹11,813 crore. Earnings before interest, tax, depreciation, and amortization (EBITDA), including other operating revenues, amounted to ₹3,035.2 crore, showing an 8.3% increase. This resulted in an EBITDA margin of 25.3% for Q4FY24, compared to 25.6% in Q4FY23.

India's business operations experienced sustained growth through its branded product offerings, resulting in an enhanced market position. The company maintains a strategic emphasis on its specialty division, as demonstrated by a substantial increase in R&D investment in this area, from 24% to 42% in the fourth quarter.