Muted revenue weighs on margin even as R&D is lower

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Sun Pharma

Muted revenue weighs on margin even as

R&D is lower

Reiterate Rating: UNDERPERFORM | PO: 1,915 INR | Price: 1,991 INR

1Q EBITDA miss on lower revenue growth in US/EMs

01 August 2026

Sun Pharma reported revenue growth 10.5% vs. BofAe 14.3% YoY due to the 7% decline

in US revenue sequentially with flattish global specialty QoQ & only 4% cc growth in

EMs (vs. +17% in last 3 qtrs). This led to 3% miss on EBITDA (Rs43bn) with margins at

28% even as R&D continued to lag guidance (5.3% of sales). While there is seasonality

impact in US specialty, we are yet to see contribution from the recent launches. We see

limited catalysts in the SUNP business in near-term with traction in new launches in US

& Ilumya PsA approval being key for SUNP’s core earnings growth (ex OGN).

Equity

Specialty traction key to watch

Global specialty revenue at $351Mn has been moderating since 3QFY26 despite positive

momentum in Ilumya (1QFY27 ann. Rx up 18% vs. FY26) and Leqselvi/Unloxcyt launches.

While it is still early days for Unloxyct, Leqselvi has been commercialized for nearly a

year with commentary on Rx indicating momentum MoM (IQVIA share is 3%). We

assume US specialty sales of $1.2bn in FY27, which would imply global specialty sales

stepping up to $400+Mn over the next 3 qtrs including potential milestone. Continued

growth in Ilumya (12% YoY) & higher new launch contribution is key to our assumption.

OGN upside – Yes, but risk of lower growth

Organon’s reported Jun qtr also continues to see revenue moderation (-2% YoY), which is

not surprising given the trend in the business so far. Moreover, there was a 400+bps

EBITDA margin decline YoY. Assuming growth recovering to 4-5% over FY28-30 with

largely stable margins post investments/synergies, we see accretion of ~Rs25-30/sh. We

revise our PO to Rs1915 (vs Rs1720 previously) as we include the upside from OGN

(awaiting closure) - a) value SUNP base at 25.5x vs. 28x previously given execution risk

and lower flexibility for M&A with 2-2.4x leverage post deal; b) value potential OGN

accretion (~Rs30/sh) at 10x given risk of lower growth and need for investment. The

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