HSBC cuts Sun Pharma target price to ₹2,000 on macro uncertainties but still sees 24% upside. Time to buy?

Global brokerage firm HSBC Global Research, in its latest report, cut its target price on Sun Pharmaceutical Industries to ₹2,000 per share from an earlier target of ₹2,280 per share but maintained its 'buy' rating. The new target price indicates a 24% upside from the stock’s latest closing price.

While the brokerage remains positive on the growth outlook for Sun’s key specialty brands (Ilumya, Winlevi, and Cequa), it noted some delays in clinical trials for pipeline assets. However, it believes Sun remains committed to investing in R&D for specialty assets.

As a result, HSBC lowered its FY27E EPS estimate to ₹59.37, factoring in increased R&D investments and a decline in gRevlimid sales. The changes to FY25 and FY26 EPS estimates are minor. Additionally, the brokerage lowered its target PE multiple to 35x (from 40x) to account for macro uncertainties, such as U.S. tariffs, and rolled forward its valuation to March 2027E from December 2026E.

The brokerage listed potential catalysts, including significant market share gains for key specialty brands (Ilumya, Cequa, and Winlevi), accelerated approval for the PsA indication for Ilumya, FDA clearance of GMP issues at its Halol plant, and an improved pace of launches for U.S. generics.

While maintaining its positive stance, the brokerage also outlined downside risks for the stock. These include slower-than-expected sales pick-up for key specialty brands, further delays in the launch of Leqselvi, and continued delays in resolving pending FDA issues at the Halol plant, along with the risk of failing to maintain compliance records with the FDA. Additionally, a slowdown in India sales growth and higher-than-expected increases in R&D and other operating expenses, primarily for specialty products, could weigh on performance, it stated. 

Strong momentum for anti-IL drugs

According to HSBC, major anti-IL (interleukin) inhibitor drugs, which compete with Sun’s Ilumya brand, reported strong sales in CY2024, indicating robust demand for this drug class. Reported global sales for key anti-IL brands (including Cosentyx, Taltz, Stelara, Tremfya, and Skyrizi) grew to ₹36 billion in 2024 from ₹13 billion in 2019, reflecting a 5-year CAGR of 22.9%. Sales growth was driven by label expansion into new indications and deeper penetration in existing indications.

Amid the strong market backdrop for anti-IL drugs, HSBC believes Sun’s Ilumya has significant growth potential, supported by its expanding reach to key opinion leaders (KoLs) and improving reimbursement channels in the U.S. However, HSBC notes that Ilumya remains a smaller brand, approved only for psoriasis, whereas competitors have approvals for multiple indications.

According to the brokerage, Ilumya’s pricing has largely remained stable. Sun reported global sales of USD 580 million for Ilumya in FY24, and its annualized sales are now trending between USD 625 and 650 million. The brokerage forecasts global sales for Ilumya to surpass USD 900 million by FY28E, primarily driven by traction in the U.S. market, which accounts for 85-90% of brand sales.

A successful completion of the ongoing Phase 3 trial for Ilumya in psoriatic arthritis could help expand its product label, HSBC noted. Sun aims to expedite trials by leveraging contract research organizations (CROs).

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.