Sun Pharma's Q1 margins likely to be hit on elevated input costs: Analysts

Sun Pharma Q1FY23 results: Prabhudas Lilladher foresees the company's net profit to rise 27 per cent year-on-year (YoY) to Rs 1,786 crores from Rs 1,445 crores in the year-ago quarter.

Drug major Sun Pharmaceutical Industries Ltd is expected to post healthy yearly revenues in the April-June quarter (Q1FY23) to Rs 10,383 crores from Rs 9,719 crores last year, according to an average of five brokerage estimates. The firm will release its Q1FY23 results on Friday, July 29.

The steady revenue is likely on the back of continued robust growth in the company’s specialty portfolio, supported by decent growth in domestic formulations too, analysts said.   
 

However, the firm is expected to report a decline in operating profits and consequently lower margins due to price erosion in the US, and elevated raw material and freight costs. 

Ebitda (earnings before interest, tax, depreciation, and amortization) margins may decline by as much as 466 basis points to 24.4 per cent. These were at 28.7 per cent in Q1FY22. 

Brokerage estimates are not uniform on net profit figures as most have considered the company’s adjusted profit of Q1FY22 for comparison, which was exclusive of exceptional items. Three estimates expect adjusted profits to decline by 13-18 per cent to around Rs 1,681 crores from a year ago.

On the flip side, Prabhudas Lilladher foresees net profit to rise 27 per cent year-on-year (YoY) to Rs 1,786 crores from Rs 1,445 crores in the year-ago quarter.

Besides, investors will closely monitor commentary on margins and ramp-up in specialty product sales.

Here’s a compilation of top brokerage expectations:

ICICI Securities: Revenues are likely to grow 7 per cent YoY to Rs 10,383 crores mainly on the back of a 5 per cent growth in domestic formulations to Rs 3,474 crore and 13 per cent growth in US sales to Rs 3,170 crore. Even though there is improvement in logistical challenges sequentially, it will be offset by inflationary input costs. Ebitda is expected to decline by 10 per cent to Rs 2,530 crore.

Prabhudas Lilladher: It expects Ebitda to decline of 6 per cent YoY led by normalisation of expenses, but this may grow 18 per cent sequentially led by continued growth momentum in specialty portfolio. Domestic formulations may register a moderate growth given the high base. US revenue may rise 4.5 per cent YoY to $397 million.

KR Choksey: The brokerage expects sales to grow 10.7 per cent YoY and 14 per cent QoQ driven by strong growth in India formulations given the company’s large market share position and strong product launches. Likely robust growth in its specialty products such as Ilumya, Cequa, and Odomzo globally and in the US will be partially offset by the competitive pricing scenario in the US.

Sharekhan: Pick-up in the specialty business would be the key growth driver. It expects muted performance in the domestic business due to the high base of last year, which was beneficial due to Covid-19. Profit margins will contract due to the high base led by licensing income.

Centrum Broking: It expects the company's revenue to rise 6.5 per cent over last year to Rs 10,294 crores. Profit margins are expected to rise sequentially on better traction in specialty segment and improvement in domestic business. US sales are projected to increase by 5 per cent from last year in constant currency terms.