The stock of drugmaker Sun Pharma looks set to end the year with healthy double-digit gains even though the year saw many pharma stocks reeling under pressure.
The BSE Healthcare index has dropped over 5 percent in the last one year while the Sensex has gained nearly 7 percent. Data show that Sun Pharma stock outperformed both indices significantly by rising nearly 27 percent in the last one year.
The stock hit its 52-week high of ₹1,070.80 on BSE on November 2, 2022, a day after it reported its September quarter numbers which turned out to be better than expected.
As Mint reported, Sun Pharma posted an over 11 percent rise in its consolidated net profit for Q2FY23 at ₹2,262 crore, on higher sales in the domestic market, as compared to ₹2,047 crore year-on-year (YoY). Analysts expected the company to report a profit of ₹1,983 crore, according to Refinitiv IBES data.
The company witnessed a nearly 14 percent rise in its total revenue from operations at ₹10,952 crore from ₹9,626 crore in the year-ago quarter.
Due to significant gains, the valuation of the stock appears rich now. At present, the price-to-earnings (PE) ratio of the stock is nearly 58 against a median PE of 29.
MintGenie talked to fundamental and technical analysts to understand if the stock can rise further. Here's what they said:
Fundamental Views
Analyst: Mitesh Shah, Research Analyst - Institutional Equities Research at Nirmal Bang
The analyst has a 'buy' recommendation on the stock for one year. He said Sun Pharmaceutical’s portfolio is perfectly balanced.
Shah pointed out that domestic formulations contribute nearly 33 percent while 32 percent comes from EMs (emerging markets), RoW (rest of the world), and 29 percent from the US market. Out of the total US revenue, about 10 percent comes from the Specialty pipeline and just 20 percent comes from the generic segment.
In domestic formulations, Sun Pharma is the largest company, with nearly 8.2 percent market share. However, the major competitive advantage of the company is its speciality platform in the US; it has already possessed a strong product pipeline including Absorica, Ilumya, Winlevi, etc.
The company is also launching these Specialty products in the RoW markets to further leverage its innovative platform.
"We remain positive on Sun Pharma due to: (i) Ramp-up of branded/speciality business in the US. (ii) Continued growth in Indian business. (iii) Potential inorganic opportunity due to a strong balance sheet. (iv) Maintenance of healthy EBITDA margin despite higher R&D spending. We also do not expect any material impact on finances due to the Hallo Import alert," said the analyst.
Technical Views
Analyst: Akhilesh Jat, Category Manager - Equity Research, CapitalVia Global Research
The analyst has a buy call on the stock with a target price of ₹1,140 and a stop loss of ₹970.
The analyst pointed out that Sun Pharma continued its positive streak for the third straight session on December 22 amid the rapid rise in Covid cases in China.
On the technical front, the primary trend of the stock is bullish as it trades in higher-high and higher-low formations and above the all-important moving averages.
Additionally, the stock has formed a bullish continuation flag pattern on the daily chart; it formed the flag pole during the strong rise from September 2022 to October 2022, which was an almost vertical price spike.
"Through some profit-booking on a higher level, the early surge comes to an end, and the price establishes a narrow
range with somewhat lower lows and lower highs from November till date which can be considered as a flag. Breakout of this level with marginally higher volume may lead to a strong bull run in the near term," said the analyst.
Analyst: Jigar S. Patel, Senior Manager - Equity Research, Anand Rathi Share and Stock Brokers
The analyst advises waiting for a healthy correction which will offer a good entry point in the stock.
From December 2021 to date Sun Pharma has made higher highs and higher lows structure which resulted in a handsome return.
At the current juncture, this counter has made a double top near ₹1,060 along with MACD displaying a bearish divergence, confirming some correction in the coming weeks.
"Any bounce from here until ₹1,050-1,060 should be used for booking profits. As of now, fresh longs are not advised. The lucrative buy will only trigger after some healthy correction to ₹920-930 levels which is also near its 200 DEMA," said Patel.
Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of MintGenie.
(CapitalVia Global Research Limited (Investment Advisor) is a SEBI Registered Investment Adviser with registration number INA200001512; type: Non-individual, validity (perpetual). It does not have any financial interest in the subject companies recommended or any opinion concerning securities or public offers have been made if any. All content provided is for informational purposes only, and shall not be relied upon as financial/investment advice.)
