*Sun Pharmaceuticals – Q2FY22 R U (BUY)*
CMP: Rs 815 (Upside 14%) MCap: Rs 1,956bn
*Sustained Q2, specialty traction continues*
Stellar Q2 driven by higher domestic growth (Covid 2% of India sales) and specialty sales ($155mn).
$10mn milestone payment from US specialty sales, lower R&D spend and lower tax outgo aided PAT beat.
Adjusted for milestone income, EBITDA margins at 27.6% (150bps beat, reported 28%).
Debt reduction of $209mn in 1HFY22.
Launched ‘Winlevi’ in Nov'21.
*Key triggers:* (1) Specialty to become EBITDA positive by FY23E, (2) Taro seems to have bottomed in terms of operating performance, lower COVID cases likely to revive Taro’s earnings efficiency, (3) Productivity improvement in India post field force expansion, (4) USFDA resolution of Halol (currently under OAI)
Factoring in the strong 1H and Winlevi launch, we increase our earnings 14-15% for FY22/23E. Our SOTP based TP of Rs930 values Sun at 26x