Brokerage firm Prabhudas Lilladher has maintained a "Buy" rating on Sun Pharmaceutical Industries, setting a target price of Rs 2,150. While the company reported a 36% decline in quarterly net profit due to one-time acquisition and legal costs, analysts remain positive, citing strong growth in domestic markets and the strategic potential of the upcoming Organon deal.
Prabhudas Lilladher has reiterated its "Buy" rating on Sun Pharmaceutical Industries with a price target of Rs 2,150, signaling confidence in the pharmaceutical giant's long-term strategy despite recent financial fluctuations. The brokerage's outlook is anchored in the company's steady operational performance, even as bottom-line figures were impacted by significant non-recurring expenses in the second quarter of fiscal year 2027.
Financial Context: Profit Dip vs. Operational Strength
In the second quarter of fiscal year 2027, Sun Pharma reported a consolidated revenue of Rs 161.99 billion, reflecting an 11.9% year-on-year growth. However, the reported net profit fell by 36.2% to Rs 19.89 billion. Investors should note that this decline is primarily attributed to one-time charges, specifically those related to the $11.75 billion acquisition of Organon and settlements involving US litigation.
Analysts emphasize that underlying operations remain healthy, as evidenced by a 14% year-on-year growth in EBITDA (earnings before interest, tax, depreciation, and amortization). Additionally, the company’s domestic formulation business demonstrated resilience, recording a 17.3% year-on-year growth, which provides a stable foundation for the firm’s earnings profile.
The Organon Acquisition Strategy
A central focus for investors is the pending $11.75 billion acquisition of Organon. The deal is expected to close in the fourth quarter of fiscal year 2027 and is viewed by the brokerage as a vital move into the biosimilars market. Management anticipates that this integration will be earnings-per-share (EPS) accretive starting from the first year of operations. By expanding its specialty medicine portfolio, the company aims to reduce its historical dependence on US generic drugs, which have faced significant pricing pressure in recent years.
Risks and Monitorables
While the brokerage remains optimistic, the path ahead involves specific challenges. The integration of a large-scale acquisition like Organon carries inherent execution risks, and the associated capital spending could create debt pressure on the balance sheet. Investors should also track the competitive environment in the US, where pricing pressure remains a persistent issue for generic pharmaceutical companies.
Furthermore, while specialty sales grew 6.9% year-on-year to $356 million in the recent quarter, maintaining this growth trajectory is crucial. Future updates to watch include the final timeline for the Organon deal closure, the company's progress in managing leverage post-acquisition, and the performance of key specialty products in international markets.