A potential risk to Sun Pharma’s consensus earnings, coupled with its premium valuations are cited as the two important factors behind the downgrade by BofA Securities.
Although Sun Pharma’s earnings, driven by the specialty portfolio provides medium-term earnings visibility, BofA Securities sees only a gradual ramp-up from its new launches, in comparison to what consensus is estimating.
Sun Pharma could continue to pursue more M&A within the specialty space, but this option is priced-in with a downside risk from a potential disappointment in scale-up of its recently acquired and launched specialty assets, BofA said in its note.Additionally, the Most Favoured Nation (MFN)-related newsflow continues to be an overhang on its largest specialty drug, which is Ilumya, according to BofA.
The brokerage wrote in its note that nearly 75% of Ilumya’s revenue comes from Medicare Part B drugs, and therefore, any impact on pricing, due to the MFN inclusion is a key risk to Sun Pharma’s earnings, as a 10% reduction will impact the company’s Earnings Per Share (EPS) by 4%.
At the current price, shares of Sun Pharma are trading at a financial year 2027 price-to-earnings multiple of 32 times, which is well above its 10-year average of 25.5 times.
Out of the 45 analysts that have coverage on Sun Pharma, 35 of them have a “buy” rating on the stock, six have a “sell” rating, while four have a “hold” recommendation.
Shares of Sun Pharma are trading at the day’s low on Tuesday, declining 2.7% at ₹1,612.6. The stock is down 5.5% in the last one month.
