Hold Sun Pharmaceuticals; target of Rs 480: Edelweiss

Edelweiss' research report on Sun Pharmaceuticals

Sun Pharma (SUNP) is the only company among peers to have made significant investments (~USD1.5bn) in specialty US business. The company’s ‘string of pearls’ strategy of sourcing external innovation by acquiring assets rather than companies, involves low risk but also offers low returns. Our deep-dive analysis of SUNP’s specialty portfolio suggests – 1) significant challenges in the build-up stage, 2) cash guzzle over next three-four years, and 3) potential over-estimation by the street. Specialty pipeline likely to add USD300mn revenue in next 5 years as decline in Absorica and Levulan-Kerastick offset key assets – Ilumya (tildrakizumab) and Seciera.

Outlook
Though, Sun’s strategy of moving into specialty is a prudent step, shifting from generics will have a steep learning curve. We maintain ‘HOLD’ with a revised target price of INR480 (INR550 earlier).

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