Pharma · investment research
Sun Pharmaceutical
SUNPHARMA
Verdict
AVOID
low confidence · 3-5 years
Composite score
45/100
Weighted across all eight pillars
Business quality
34/100
Moat, returns, balance sheet, cash, management
Valuation score
78/100
At 20.1x against a sector median of 70.5x, the price embeds roughly 7% earnings growth. Anything less has to come out of the multiple.
Decision intelligence
Every conclusion states what would make it wrong
WHAT
Avoid for now — the business or governance risk outweighs the opportunity.
WHY
- • Profitability & returns scores 3/100 (improving) — ROCE was 4.8% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- • Balance sheet scores 12/100 (deteriorating) — Leverage is high enough that a demand shock becomes a solvency question.
- • Cash conversion scores 81/100 (stable) — Reported profit is backed by operating cash.
- • Valuation scores 78/100 (stable) — At 20.1x against a sector median of 70.5x, the price embeds roughly 7% earnings growth. Anything less has to come out of the multiple.
WHERE
Pharma · Large cap · position sized to at most 0% of an equity portfolio.
WHEN
Re-run this analysis after the next quarterly result.
WHAT IF WRONG
- • The thesis is wrong if ROCE falls below 6% or cash conversion stays under 70% for two straight quarters.
- • Valuation support fails below ₹4,099 of fair value — a drawdown to that level is a re-underwrite, not automatically a buy.
- • Watched risk: Leverage — Debt is 11.2x EBITDA.
WHAT NEXT
- • Read the latest quarterly cash-flow statement alongside the P&L.
- • Check USFDA actions — it moves the earnings base independently of execution.
- • Compare against the sector peers listed below before sizing anything.
Sun Pharmaceutical is a competitively exposed pharma business compounding revenue at 10.8% and profit at 25.1%, earning 6.1% on capital. Quality scores 34/100 and valuation 78/100 at 20.1x. The decision is therefore avoid with low confidence — this is analysis for learning, not investment advice.
What does this business actually do?
Business understanding before ratios
Sun Pharmaceutical operates in the Indian pharma sector with a large-cap footprint and a listed market value of about ₹418k Cr.
Revenue is earned across 4 reported segments; profitability is driven by realisations, mix and operating leverage rather than one-off items.
Revenue drivers
- • Volume growth in the core segment
- • Realisation / pricing power
- • Mix shift toward higher-margin lines
- • Capacity utilisation
Cost drivers
- • Raw material and input costs
- • Employee cost inflation
- • Interest cost on borrowings
- • Distribution and marketing spend
Moat · 38/100
No durable moat identified
Competition is largely on price; returns depend on execution and the cycle.
Segment mix
Growth -1.5% · margin 26.9% — Flat to declining; drags the consolidated growth rate.
Growth 5.6% · margin 20.2% — Growing broadly in line with the overall business.
Growth 10% · margin 32.4% — Growing broadly in line with the overall business.
Growth 35.1% · margin 16% — Fastest growing part of the mix — watch whether margins hold as it scales.
Analysis pillars
Score, trend and the drivers behind each — no bare numbers
Business & moat
41/100Trend: deteriorating · weight 14%
- MoatNo durable moat identified
Competition is largely on price; returns depend on execution and the cycle.
- Segment concentrationIndia formulations is 28.4% of revenue
Revenue is spread across segments, which softens single-market shocks.
- EBITDA margin18.0%
Margin moved from 20.0% to 18.0% year on year.
Profitability & returns
3/100Trend: improving · weight 16%
- ROCE6.1%
ROCE was 4.8% a year ago. Sustained ROCE above the cost of capital is what compounds value.
- ROE6.7%
Return on equity after leverage — read alongside debt levels.
- Net margin13.3%
Share of every rupee of revenue that reaches reported profit.
Growth quality
75/100Trend: improving · weight 15%
- Revenue CAGR (4y)10.8%
Top-line compounding over the reported history.
- Profit CAGR (4y)25.1%
Profit is compounding faster than revenue — operating leverage is working.
- Growth sourceCapex-led (organic)
Capex is 12.0% of revenue this year.
Balance sheet
12/100Trend: deteriorating · weight 12%
- Debt / EBITDA11.16x
Leverage is high enough that a demand shock becomes a solvency question.
- Debt / equity0.95x
Capital structure relative to shareholder funds.
- Working capital96 days
Long cycle: each rupee of growth locks up more cash.
Cash conversion
81/100Trend: stable · weight 13%
- OCF / PAT111%
Reported profit is backed by operating cash.
- Free cash flow₹5,079 Cr
Cash left after maintaining and expanding the asset base.
Management & governance
33/100Trend: deteriorating · weight 14%
- Guidance delivery56% of last 8 quarters
Whether management historically delivered what it promised.
- Promoter holding12% (-1.59 y/y)
Promoters have been reducing ownership over the last year.
- PledgeNo pledge
No pledge disclosed in the sample data.
- Institutional flowFII +1.48 · DII -2.11
Direction of institutional ownership over the last year.
- Capital allocationSurplus cash is largely returned to shareholders…
Surplus cash is largely returned to shareholders rather than reinvested.
Industry & macro
60/100Trend: improving · weight 8%
- Demand trendimproving
Pharma (India) demand is improving.
- StructureConsolidated
Consolidated — a few large players hold most of the profit pool.
- Competitive intensityhigh
How hard it is to keep pricing and share.
- Macro driversUSFDA actions, US price erosion, API input costs
Variables that move the earnings base regardless of company execution.
Valuation
78/100Trend: stable · weight 8%
- P/E vs sector20.1x vs 70.5x
At 20.1x against a sector median of 70.5x, the price embeds roughly 7% earnings growth. Anything less has to come out of the multiple.
- Growth-adjusted0.80 (PE/growth)
Below ~1.5 the multiple is supported by growth; above ~2.5 it depends on the market staying optimistic.
- FCF yield1.22%
Cash return on the current market value, before any growth.
Financial history
Profit, cash and returns over five reported years
| Year | Revenue | EBITDA | PAT | OCF | FCF | ROCE |
|---|---|---|---|---|---|---|
| FY2022 | ₹1.21 L Cr | ₹15,751 Cr | ₹9,923 Cr | ₹10,221 Cr | ₹5,375 Cr | 5.4% |
| FY2023 | ₹1.36 L Cr | ₹19,104 Cr | ₹12,227 Cr | ₹12,838 Cr | ₹3,286 Cr | 7.3% |
| FY2024 | ₹1.52 L Cr | ₹25,798 Cr | ₹18,833 Cr | ₹20,151 Cr | ₹11,046 Cr | 5.1% |
| FY2025 | ₹1.67 L Cr | ₹33,410 Cr | ₹19,044 Cr | ₹20,758 Cr | ₹7,394 Cr | 4.8% |
| FY2026 | ₹1.82 L Cr | ₹32,822 Cr | ₹24,288 Cr | ₹26,960 Cr | ₹5,079 Cr | 6.1% |
- ⚠ Working capital cycle is long; growth consumes cash.
Ownership & management
Who owns it, and have they delivered?
Promoter
12%
-1.59 y/y
Pledge
None
No disclosed pledge
FII
31.6%
+1.48 y/y
DII
16.6%
-2.11 y/y
Guidance delivered in 56% of the last eight quarters; average leadership tenure 22 years.
Surplus cash is largely returned to shareholders rather than reinvested.
- ⚠ Related-party transactions at 8.6% of revenue
Industry & macro context
Pharma (India)
Demand trend
improving
Cyclicality
high
Competition
high
Regulatory pressure
low
Consolidated — a few large players hold most of the profit pool.
Macro drivers: USFDA actions · US price erosion · API input costs
Valuation
cheap versus the sector
P/E
20.1x
Sector median P/E
70.5x
P/B
7.32x
Earnings yield
4.98%
FCF yield
1.22%
PE / growth
0.8
Estimated fair-value band ₹4,099 – ₹5,237 , built on FY2026 EPS of ₹101.2. Gap to the current price: +168%. Ranges are a modelling output, not a target price.
At 20.1x against a sector median of 70.5x, the price embeds roughly 7% earnings growth. Anything less has to come out of the multiple.
Risk register
What can break the thesis, and how it is monitored
- Leveragehigh
Debt is 11.2x EBITDA.
Monitor: Quarterly gross debt and interest coverage.
- Cyclicalitymedium
Pharma (India) earnings swing with the cycle, so trailing numbers flatter the peak.
Monitor: USFDA actions
- Governancehigh
Related-party transactions at 8.6% of revenue
Monitor: Annual report disclosures and auditor commentary.
- Accounting qualitymedium
Working capital cycle is long; growth consumes cash.
Monitor: Cash-flow statement versus P&L each quarter.
Ongoing thesis monitoring
The thesis is a living position, not a one-time verdict
| Metric | Currently | Thesis holds if | Thesis breaks if |
|---|---|---|---|
| ROCE | 6.1% | stays above 6% | falls for two consecutive years |
| Cash conversion | 111% | stays above 80% | drops below 70% while revenue grows |
| Revenue growth | 10.8% CAGR | tracks the 7% priced in | slows for two quarters with no margin offset |
| Promoter holding | 12% | stable or rising | falls sharply or fresh pledge appears |
Peers in the same sector
Compare before sizing anything
Data quality 58/100
Stated openly, as required by the product principles
- • Fundamentals in this build come from a deterministic sample dataset, not licensed exchange filings.
- • Segment, ownership and management figures are illustrative and must be verified against annual reports.
- • Educational analysis only — not a recommendation to buy or sell any security.
- • Accounting flags reduce the reliability of the reported profit base.