BofA Securities downgraded its rating on Sun Pharmaceutical Industries Ltd to “Underperform” from “Neutral,” citing risks to consensus earnings estimates and concerns over the stock’s rich valuation. The brokerage also lowered its price target to Rs 1,570 from Rs 1,730.
BofA noted that Sun Pharma’s specialty segment, which has been a crucial growth driver, faces challenges due to delays in ramping up new products. Although drugs like Ilumya, a psoriasis treatment, have seen strong initial uptake, broader revenue contribution from recently acquired assets such as Leqselvi and Unloxcyt may be more gradual than expected.
One key risk highlighted is the potential impact of the US Most Favored Nation (MFN) drug pricing regulations on Ilumya, which derives about 75% of its revenue from Medicare Part B. BofA estimated that a 10% price reduction under MFN inclusion could reduce Sun Pharma’s earnings per share (EPS) by roughly 4%, adding to investor concerns.
Despite the challenges, BofA acknowledged that Sun Pharma continues to pursue mergers and acquisitions in the specialty segment, though it believes much of the value from these deals is already priced into current stock levels.
Following the downgrade announcement, Sun Pharma’s shares declined approximately 3.5%, closing near Rs 1,601 on the Bombay Stock Exchange. The stock is trading at a forward price-to-earnings multiple of about 32 times for fiscal 2027, a premium compared to its historical average of around 25 times.
Technical analysis indicates bearish trends with the stock trading below key moving averages, reinforcing near-term downside risks. Market experts suggest investors approach the stock cautiously, given valuation pressures and execution uncertainties.
Sun Pharma’s growth outlook now hinges on how effectively it can accelerate new drug launches, navigate pricing pressures, and manage regulatory risks in a competitive specialty pharmaceutical landscape.
