Margin pressure, slower growth outlook may cap upside for Sun Pharma stock

ET Intelligence Group: Sun Pharmaceutical Industries recorded double-digit growth in revenue and net profit for the March quarter; however, operating margin before depreciation and amortisation (EBITDA margin) was under pressure due to higher investments and lower milestone income from products. It is expected to stay range-bound given continued spending on specialty launches and higher research and development (R&D) expenditure. The proportion of R&D expenses in revenue hit an eight-quarter high of 6.7% in the March quarter.

The company expects revenue growth to moderate in FY27. After clocking 11.9% top line growth in revenue at ₹58,220.1 crore in FY26, growth is likely to slow down to high single-digit for FY27. The pipeline across dermatology, oncology and metabolic therapies, along with new launches and the proposed Organon acquisition, will be key growth drivers. The stock’s current P/E at 38.6 is at a premium to the three-year and five-year average P/Es of 35 and 32 respectively. That may limit the upside for the stock in the medium term amid pressure on profitability and a likely slowdown in revenue growth.

In the March quarter, EBITDA margin contracted 160 basis points year-on-year to an eight quarter low of 27.1%. The company expects the margin to remain range-bound in the near term amid temporary expenses which are expected to normalise over the coming quarters. It also anticipates R&D spends to remain elevated at about 6-7% of sales for FY27 given the focus on innovative therapies.
The domestic formulation (DF) segment remained strong, with the company continuing to outperform the broader industry for two consecutive years, driven by new launches and market share gains in existing products. This momentum is expected to sustain, supported by a robust product pipeline and expansion into high-growth segments such as GLP-1 therapies. The US formulations segment declined marginally in the March quarter and could remain subdued in the near term dragged by pricing pressure and erosion in the base portfolio. The recovery is expected to be gradual, supported by new product launches, pipeline approvals and capacity additions over time.