Sun Pharma Initiating Coverage Report - AMSEC

Sun Pharma Industries Limited.
Eyes On The Sky

Initiating Coverage
Pharmaceutical Initiating Coverage
FY21-23E Earnings CAGR 7%
Sun Pharma Industries Limited CF & Return Profile Improving

Valuations Attractive
Eyes On The Sky
Institutional Research With an 8.2% market share in India and leadership in 11 therapies, Sun
Pharmaceutical Industries is the largest domestic pharma player with a presence
BUY across 100 countries. We believe its domestic business can grow at 11% CAGR over
FY21-23E with >30% EBITDA margins. While its US generics business has struggled
over the past four years, the >$1 bn worth of investments in the specialty business is
CMP (Rs) 697
bearing fruit. We expect this business to grow from $429 mn in FY20 to >$700 mn in
Target (Rs) 802
FY23E. We believe Sun Pharma can deliver revenue CAGR of 10% and PAT CAGR of 7%
Upside (%) 15
over FY21-23E. Thus, we initiate coverage with a ‘buy’ rating and a price target of Rs.
Nifty: 14,821; Sensex: 50,354 802.
Key Stock Data

Domestic Business: Focus on superior profitability
Sun Pharma’s domestic market share has declined 80bps over 2015-2021 due to business
Bloomberg SUNP IN
restructuring, mandated divestments of products and slower growth in acute therapies.
Shares O/s Mn (FV INR 10) 2,399
However, its top 10 brands grew at 12% CAGR over the past three years. Now, the company
Mkt Cap(USD bn/INR bn) 23/1,673
aims to grow its smaller brands, expand its doctors’ network and sales force. Hence, domestic
52-week high/low 704/434
revenue can grow to Rs.126 bn in FY23E and contribute 45% of EBITDA.
6m daily avg vol(INR Mn) 5,354
Free Float % 40 Specialty Business: Humble beginnings with massive potential
Its specialty business is expected to grow at 23% CAGR over FY20-23E to reach $718 mn, driven
Price Performance by brands such as 1] Ilumya ($283 mn in FY23E), 2] Cequa ($100 mn in FY23E) 3] Odomzo
(%) 3m 1yr 3yr ($65 mn) and 4] Bromsite ($60 mn). While Ilumya can benefit from improving market share of
SUNP 11.2 50.3 13.0 interleukin-23 or IL23s and access to formularies, Cequa can benefit from its higher efficacy
NIFTY (0.8) 63.7 13.3 and safety profile as compared to competing drugs. Odomzo is likely to benefit from the
NSE500 2.0 69.9 12.1 expanding hedgehog pathway inhibitors market, and Bromsite has low competition in
Bromfenac formulations.
US Generics Business: Erosion to continue, but see opportunities after FY23

Shareholding Pattern
Sun Pharma’s generics business (incl. Taro) has halved over the past 5 years due to high base
(%) Sep-20 Dec-20 Mar-21
erosion, pricing pressure and the lack of big launches. This is reflected in its almost flat ANDA
Promoter 54.7 54.5 54.5 pipeline over the past six years and net 84 approvals from FY16-9MFY21. Based on our analysis
FII 12.4 12.2 11.7 of litigation products and drug master files, we believe the company could see sizable
DII 20.5 20.8 21.6 opportunities after FY23E. However, near-term opportunities look competitive. We expect US
Others 12.5 12.5 12.2 generics revenue to stay below $1 bn till FY23E.
Outlook and Valuation

We forecast Sun Pharma’s revenue/PAT to grow at 10%/7% CAGR over FY21-23E. With the
improvement in the specialty business, we build expansion in return ratios up to >400bps by
FY23E and Rs.124 bn cumulative FCF generation over FY22-23E. Sun Pharma currently trades
at 26.3x/23x FY22E/FY23E EPS, which means 7%/3% discount to its 10-year average and
19%/16% to its 5-year average forward P/E multiple. We value Sun Pharma at 27x its FY23E
Shrikant Akolkar
Shrikant.akolkar@amsec.in EPS and initiate with a ‘buy’ rating and price target of Rs. 802.
+91 22 4343 5000
Exhibit 1: Key Financials (Rs mn) Exhibit 2: Key Indicators

Y/E Mar FY19 FY20 FY21E FY22E FY23E Y/E Mar FY19 FY20 FY21E FY22E FY23E
Sales 2,90,659 3,28,375 3,35,123 3,73,583 4,07,310 RoE (%) 9.4 8.9 13.2 12.2 13.0
yoy (%) 9.7 13.0 2.1 11.5 9.0 RoCE (%) 10.9 10.5 13.7 13.9 14.9
EBITDA 63,076 69,898 85,769 95,057 1,07,937 RoIC (%) 12.4 11.5 15.6 15.0 16.3
yoy (%) 12.5 10.8 22.7 10.8 13.6 D:E (x) 0.2 0.2 0.2 0.1 0.1
Rep. PAT 38,798 40,256 62,130 61,940 71,237 PER (x) 42.0 40.5 26.2 26.3 22.9
yoy (%) 27.4 3.8 54.3 (0.3) 15.0 P/BV (x) 3.9 3.6 3.4 3.2 3.0
EBITDAM (%) 21.7 21.3 25.6 25.4 26.5 EV/Sales (x) 5.6 4.9 4.8 4.2 3.8
NPM (%) 4,14,091 4,52,645 4,72,365 5,08,169 5,49,347 EV/ EBITDA (x) 25.6 22.8 18.5 16.4 14.3
EPS 16.2 16.8 25.9 25.8 29.7 Div. Yield 0.3 0.8 0.7 1.3 1.5
Source: Company, AMSEC Research
Refer Disclosures & Disclaimer at the end of the report. Our reports are available on Bloomberg ASNM <GO>, ThomsonReuters, Factset and Capital IQ May 10, 2021
Sun Pharmaceutical Industries- Initiating Coverage
Table of Contents
Sr. No Particulars Page No.
1 Key Assumptions For Sun Pharma 4
2 Management Commentary on COVID-19 Impact 5
3 Story In Charts 6
4 Market Share Of Key Specialty Products In The US 7
5 Investment Rationale 8
6 Sun Pharma’s Cash Cow – Domestic Business 17
7 US Generics - 21
8 EM and ROW Markets 25
9 API Business 26
10 Financial Performance 27
11 Performance in the Past Quarters 29
12 10-Year Historical Financial Data 30
13 Valuation 31
14 Risks 32
15 Company Overview 33
16 Financials 36
May 10, 2021 3

Exhibit 3: Key Assumptions for Sun Pharma

Segment Assumptions/Outlook
Expect revenue at $718 mn in FY23E, led by Ilumya ($283 mn in psoriasis) and Cequa ($100 mn). We build in
Global Specialty Business Levulan at $90 mn and Absorica franchise at $66 mn in FY23E. Expect the specialty business (ex-Absorica
franchise and Levulan) to clock 9% EBITDA margins in FY22E and 23% in FY23E.
We build in US generics revenue (Taro US + Sun) at $965 mn in FY23E. Halol is not a major contributor to Sun’s
US Generics
revenue (~3% in FY23E). We expect the generics business to see margins of 19%.
We think Sun’s para IV opportunities are still 3-4 years away from potential commercialization. The near-term
Para IV Products potential opportunities are gAmitiza, gXifaxan, gRevlimid and gIbrance, but these are crowded by many
filers/settlements.
We build 11.5% CAGR in domestic business on expectations that Indian pharmaceutical market (IPM) growth will
India Business bounce back in the next two years, on a low FY21 base. We build 32% EBITDA margins for Sun Pharma’s domestic
business (margins of three key therapies assumed at 43%).
EM + ROW The revenue in both the geographies is assumed to grow at 7% CAGR.
API Business The segment is forecast to grow at 11% CAGR over FY21-23E.
Consolidated Revenue Growth Seen at 7% over FY21-23E
Consolidated EBITDA Margins Built at 26.5% in FY23E vs 21.3% in FY20 and 25.6% in FY21E.
As the company ramps up the global specialty business, we build in ROCE of 13.9%/14.9% in FY22E/FY23E,
ROCE
respectively.
FCF See Rs.57 bn and Rs.67 bn FCF in FY22E and FY23E, respectively.
Source: AMSEC Research
May 10, 2021 4

Exhibit 4: Management Commentary on COVID-19 Impact
4QFY20 1QFY21 2QFY21 3QFY21

Patients stocked chronic Advance purchases continued, Chronic portfolio growing 90-95% doctors practicing;
medicines, onset of chronic remained normal while acute in high single-digits while hence, travel costs rose, small
pandemic partially business got hit due to clinic closures, recovery has started in doctor conferences re-started.
India Business impacted force higher cost savings due to lower semi-chronic; acute Sub-chronic has rebounded,
expansion SG&A expenses. Physical interactions segment revenue declined. but acute will take longer to
started with 50% of doctors rebound
Shipments disrupted due Specialty business declined QoQ, but Revenue reached pre- Travel costs continue to remain
to lockdown, slight did not lose market share. COVID level, gained low. Overall, 40-45% face to
US Specialty stocking up of Ilumya, Dermatology and ophthalmology market share in most face interactions
Business Cequa and Yonsa by the clinics were closed, which impacted products with gradual
customers specialty business opening of doctors’ clinics
Drop in prescriptions as Revenue declined during the quarter US revenue reached pre-
ophthalmologists COVID level
and optometrists
Cequa stopped working during
the first wave of COVID
in the US
Phase III trials delayed Doctors asked patients to not visit US revenue reached pre- Ilumya sales in 9MFY21
clinics for next Ilumya dose as skin COVID level crossed FY20 full-year revenue
Ilumya
clearance would sustain
Sales impacted due to Recorded lower sales as it is an in- Levulan sales are yet to Sales have recovered vs
the pandemic only in the clinic administered product and recover fully 1HFY21 but not fully
Levulan last fortnight of the clinics had temporarily closed normalized. Patient footfalls at
quarter the dermatology clinics not
normalized
No major impact, Gradual shift of patients from Lost valuable time to Conversion of Absorica to LD
launched LD version Absorica to Absorica LD in absence of convert Absorica to LD version to 20% and impacted
Absorica
promotion version due to COVID
Significant impact of COVID-19 on Sun Pharma’s generics Generic prescriptions reached

Taro’s business business showed YoY close to pre-COVID level, Taro
US Generics growth saw reduced volumes
R&D expenses declined due to delay Lower R&D expenses due to Lower R&D expenses due to
R&D expenses in the trials slower patient enrollment lower patient enrollments
Source: Sun Pharma, AMSEC Research
Exhibit 5: COVID crisis & its impact on the growth rates Exhibit 6: Silver lining - Improved EBITDA margins
(%)
(%)
73.0 74.0 74.9 73.6
71.8
25.6 27.2
22.6 24.3
4QFY20
1QFY21
2QFY21
3QFY21
4QFY20
1QFY21
2QFY21
3QFY21
4QFY20
1QFY21
2QFY21
3QFY21
16.7
4QFY20 1QFY21 2QFY21 3QFY21

India Global Specialty Taro
Gross margins EBITDA margins
May 10, 2021 5

Story in Charts
Exhibit 7: Revenue growth - More ups than downs Exhibit 8: End markets’ revenue contribution
(Rs bn) (%) (%)
12.1 11.9 5.4 6.0 6.0 6.3 6.3 6.3
10.1 9.0 11.5 12.1 14.0 14.8 14.3 14.1
2.1 18.7 18.8 17.1 17.7 17.1 16.8
26.7 23.3 19.9 19.3 18.0

31.3
7.0 9.4 10.7 12.2 13.4
6.2
-16.1
31 26 30 31 31 31
265 292 327 334 374 407
FY18 FY19 FY20 FY21E FY22E FY23E FY18 FY19 FY20 FY21E FY22E FY23E
Revenue Growth (%) India US Specialty US generics (incl Taro) EM ROW API
Exhibit 9: Margins intact – On an uptrend Exhibit 10: Adjusting to the new normal – Profit growth
(Rs bn) (Rs bn) (%)
(%) 54.3
25.6 25.4 26.5
27.4
21.2 21.7 21.3 15.0
3.8 -0.3
-56.3
561 631 699 858 951 1,079 30 39 40 62 62 71
PAT PAT growth
EBITDA EBITDA margins
Exhibit 11: In research lies development – R&D spends Exhibit 12: Cash is always king – Sun’s free cash flow trend
(Rs bn) (%) (%)
8.5
7.3 7.5
6.8 6.5
6.0
19 50 31 57 67
-10
22 20 20 22 27 31
R&D expenditure % of revenue FCF
Exhibit 13: Geared for stronger return ratios Exhibit 14: Valuation watch - 1-year forward P/E multiple
(%) 60.0
14.9 50.0
13.7 13.9 40.0
30.0 27..6
10.9 10.5 13.0 20.0
10.3 13.2 12.2 10.0
0.0
1
9.4
8.9 2
8.0 .
FY18 FY19 FY20 FY21E FY22E FY23E 7
ROCE ROE Fwd P/E Avg (x)
May 10, 2021 6

100
150
200
250
300
1000
1500
2000
2500
3000
3500
500
200
300
400
500
0
1000
1200
1400
200
400
600
800
Mar-19 Mar-19 Mar-19
Mar-19
May 10, 2021

May-19 May-19 May-19
May-19
Jul-19 Jul-19 Jul-19 Jul-19

Exhibit 15: Ilumya
Exhibit 21: Xelpros

Exhibit 19: Levulan
Exhibit 17: Odomzo
Sep-19 Sep-19 Sep-19 Sep-19
Source: Bloomberg, AMSEC Research

Nov-19 Nov-19 Nov-19 Nov-19
Jan-20 Jan-20 Jan-20 Jan-20
Mar-20 Mar-20 Mar-20 Mar-20
XELPROS
ILUMYA
LEVULAN
ODOMZO
May-20 May-20 May-20 May-20
Jul-20 Jul-20 Jul-20 Jul-20

Sep-20 Sep-20 Sep-20 Sep-20
Nov-20 Nov-20 Nov-20 Nov-20
Jan-21 Jan-21 Jan-21 Jan-21
50
0
100
150
200
0
12000
16000
4000
8000
0
10000
15000
20000
25000
30000
35000
5000
0
10000
12000
2000
4000
6000
8000
Mar-19
Feb-19
Mar-19 Sep-19
May-19 Apr-19
May-19
Jul-19
Nov-19
Exhibit 22: Yonsa

Jun-19
Exhibit 16: Cequa
Jul-19
Exhibit 20: Absorica

Exhibit 18: Bromsite
Sep-19 Aug-19 Jan-20

Sep-19
Nov-19 Oct-19
Nov-19 Mar-20
Jan-20 Dec-19
Jan-20
Feb-20 May-20
Mar-20
YONSA
CEQUA
Mar-20
BROMSITE
ABSORICA
Apr-20
May-20 Jul-20
May-20
Jun-20
Jul-20
Jul-20
Aug-20 Sep-20
Sep-20
Sep-20
Oct-20
Nov-20 Nov-20
Dec-20 Nov-20
Sun Pharma’s Big Bets – Market Share of Key Specialty Products in the US
Jan-21 Jan-21
Feb-21 Jan-21
7
Investment Rationale – What Sets Sun Pharma Apart

Special pedigree: Specialty medicine is one of the fastest-growing categories in the global
drug market. These drugs require advanced research, and they are mainly used in treatment of
chronic, complex and rare diseases. Specialty drugs typically 1) require higher R&D investments,
2) have higher complexity, 3) are prescribed by specialists, 4) require complex supply chain
management and 5) warrant patient payment assistance. Hence, specialty medicines also
require a sales force to market them.
The share of specialty medicines in the global market has risen from 21% in 2009 to 36% in
2019, and can rise further to 40% by 2024. In the US, specialty drug revenue stood at $162
bn in 2015, which grew to $245 bn in 2019 (11% CAGR). Meanwhile, the traditional drug
market grew by ~2% during this period. The penetration of specialty drugs in the US rose from
38% to 44-48% during the same period, and can cross 50% in the next 4 years.
Exhibit 23: Opportunity in complexity – Global drugs

Exhibit 24: Increasing revenue share of specialty drugs
market
$ bn (%)
52
1,054
953 993 44
872 922 40
36
32
628
610 610 36
606 23 27 32
588
21 24
19 14
12 15
343 383 426 11
284 316
2009 2014 2019 2024
2015 2016 2017 2018 2019
Global Developed markets
Specialty Traditional Total
Pharmarging markets ROW
Against this backdrop, Sun Pharma’s foray in the specialty business looks attractive. Specialty
pharma products offer operating margins of >35%. We like Sun Pharma’s conviction in the
specialty business, which is showing early sings of success. We believe that, when key products
in its specialty business achieve critical market share, the business should generate significant
cash flows, and improve return profile of Sun Pharma.
Exhibit 25: Conviction through calculated steps - Sun Pharma’s journey in the specialty business
Year Event in Specialty segment
2012 • Acquisition of Dusa (Levulan Kerastick) for $230 mn
2014 • In-licensed IIumya from Merck for $80 mn
2015 • Sun Pharma–Ranbaxy merger (access to Absorica)

• Acquisition of InSite Vision (BromSite, DexaSite) for $48 mn
• In-licensed Xelpros from SPARC ($3 mn upfront + $16 mn milestone payment)
2016 • Licensing agreement with Almirall for Ilumya in Europe and with Elepsia XR with SPARC
• Acquisition of Odomzo (oncology) from Novartis for $175 mn
• Acquisition of Ocular Technologies (Cequa - Ophthalmology) for $40 mn
• Launch of BromSite in the US and InfuSMART in Europe
2017 • Biofrontera gets USFDA approval for Ameluz (competitive product of Levulan KERASTICK)
2018 • USFDA approval for Yonsa (May-2018, in-licensed from Churchill Pharma), Infugem (July 2018), Cequa (August 2018), Xelpros
(Sept 2018), Elepsia XR (Dec 2019)
• Tildrakizumab received EMA approval and Australia approval in Sept 2018.
• Launch of Kapspargo Sprinkle (August -2018)
• Preliminary Injunction against Biofrontera’s Ameluz (Dec 2018)
2019 • Feb-2019 – Returned Elepsia XR to SPARC

• June 2019 – Out-licensed Tildrakizumab with CMS in China (June 2019)
• US Launch of Ezallor Sprinkle (July 2019), Cequa (Oct 2019), Drizalma Sprinkle (Oct 2019)
• July-2019 – Started Xelpros patient access program.
• Nov 2019 - Licensing agreement with AstraZeneca for novel infusion compound
2020 • Feb-2020 – Absorica LD launched in the US

Source: Company
May 10, 2021 8

Ilumya – IL-23 in a Crowded Psoriasis Space

Psoriasis is an autoimmune inflammatory disorder in which cells multiply up to 10x faster than
normal. This leads to inflammation, red lesions, and plaque formation on the skin. There are
two types of the disease - plaque psoriasis and psoriatic arthritis (joint pain and stiffness) and it
affects 2-3% of the global population (~125 mn), of which ~16% can have moderate to severe
plaque psoriasis. About 10-30% patients with psoriasis also develop psoriatic arthritis (PsA). In
developed nations, the prevalence of psoriasis is 1.5-5%, and it is rising. In the US, psoriasis
affects ~2.2% people (~8 mn). Of this, ~1.2 mn people are affected by moderate to severe
psoriasis. Of those, 73% receive treatment. The biologics penetration, in the treatment of
psoriasis is ~40%, which is also rising due to the superior efficacy of biologic drugs. It is also
believed that 52% of those patients who receive systematic treatment remain dissatisfied.
The Psoriasis Treatment Landscape

Due to superior efficacy
and safety profile, IL-23- Systemic therapies to treat psoriasis include small molecule agents such as Cyclosporine,
based biologics are
Methotrexate, Acitretin, Tofacitinib, and Apremilast and biologic agents such as Adalimumab,
already grabbing
considerable market share Etanercept, Riskanizumab, Tildrakizumab, etc. Over the last decade, the market has moved from
small to large molecules – from TNF inhibitor biologics to Interleukin inhibitors (IL). The IL
inhibitors have proven superior in efficacy and safety than TNF inhibitor biologics. Within IL
inhibitors, the market has started to slowly shift from IL-17 inhibitors to IL-23 inhibitors as the
latter have better efficacy and require fewer injections.
The total prescription data as per Bloomberg’s database shows that share of small molecules in
total Rx has been stagnant at 11-13% for two years, while TNA Alfa inhibitors have lost 900 bps
market share, which was grabbed by IL inhibitors.
Skin in the Game - How Ilumya Stacks Up

Among the existing IL-23 inhibitor biologics, Skyrizi offers higher efficacy vs. all other biologics.
It is followed by Tremfya and then Ilumya based on PASI100 score on the 52nd week. Johnson
& Johnson’s Stelara has matching 52-week PASI100 score with Ilumya. However, Ilumya has
superior efficacy when compared on PASI75 and PASI90 scores. It is superior than the TNF-α
inhibitors as well as IL-17 based biologics. As IL-23 inhibitor biologics continue to gain market
share, we believe Ilumya’s primary competition will be versus other IL-23 inhibitors (Stelara,
Skyrizi and Tremfya).
Eli Lilly’s Mirikizumab, an IL-23 inhibitor biologic (currently in phase III) has PASI90 score of
74.4%/82.4% and PASI100 score of 37.7%/58.8% on 16/52 weeks respectively. UCB’s
Bimekizumab (IL-17 inhibitor agent), which has been submitted with the USFDA and EMA, has
PASI90 score of 86.2% (week 16) and PASI100 score of 60.8% (week 24). These two potential
biologics will be an additional competition in the Psoriasis biologics space.
Exhibit 26: Skin in the game - Ilumya vs. other biologics present in psoriasis treatment
Drug Type Pasi 75 Pasi 90 Pasi 100 Dose Price Approval Global Us revenue Innovator
($) Year revenue ($ ($ mn)
mn)
Skyrizi IL-23 89% 81% 60% 75MG/
17,772 2019 1590 1,385 AbbVie
Risankizumab (16 week) (52 week) (52 week) 0.83ML
Ilumya/Illumetri IL-23 92% 70% 35% 100MG/ Not
15,263 2018 #100-130 Sun Pharma
Tildrakizumab (52 week) (52 week) (52 week) ML disclosed
Siliq IL-17 44% 28% 44% 210MG/ Not
1,372 2017 39 Bausch Health
Brodalumab (16 week) (16 week) (12 week) 1.5ML disclosed
Tremfya IL-23 87.8% 84.5% 58.2% 100MG/
12,473 2017 1347 926 J&J
Guselkumab (48 week) (48 week) (52 week) ML
Taltz Ixekizumab IL-17 71% 60% 51 % 80MG/
6,247 2016 1788 1,289 Lilly
(52 week) (52 week) (52 week) ML
Cosentyx IL-17 89% 69% 45.9% 150MG/
6,200 2015 3995 2,516 Novartis
Secukinumab (52 week) (52 week) (52 week) ML
Stelara IL-12/23 81.9% 60.6% 35.8% 5MG/
1,846 2009 7707 5,240 J&J
Ustekinumab (24 Week) (52 week) (52 week) ML
Humira TNF-Α 79% 54% 32% 40MG/
3,120 2002 19832 16,112 AbbVie
Adalimumab (52 Week) (52-week S) (52 week) 4ML
Enbrel TNF-Α 68% NA 41% 50MG/
6,240 1998 1900 1,236 Amgen + Pfizer
Etanercept (36 week) (36 week) ML
Source: Sun Pharma, AMSEC Research, #our estimate
May 10, 2021 9

Exhibit 27: Ilumya maintains efficacy over the long term in psoriasis management
Ilumya – A billion dollar opportunity

The psoriasis drug market was estimated to be worth ~$16 bn in 2018, and is expected to reach
~$39 bn in 2026. PsA market is estimated to be $7.3 bn in 2020 and can reach ~$10 bn in
2023. While Ilumya has entered in a crowded space of psoriasis treatment, higher efficacy of
IL-23 vs. other biologics would help the product gain mid-single-digit market share. We believe
Skyrizi would emerge as the leader in the category, while the rest of the IL-23 inhibitors would
compete for ~40% market share. Accordingly, we assume $346 mn peak global revenue for
Ilumya in Psoriasis indication.
Sun Pharma had announced Phase-III trials of Ilumya in PsA, but it got delayed due to the
difficulty in patient enrollment due to COVID-19. An approval for Ilumya in PsA indication will
lead to a revision in our peak global revenue estimate to $402 mn. Our peak market share
If Ilumya grabs double-digit assumption for Ilumya in the US is 7% in 2024.
market share, there is a high
probability of it becoming a It is important to note that the entry of Humira biosimilars remains an overhang on Ilumya for
global blockbuster drug market share gains after 2024. The company believes patients may be put on Humira biosimilars
even as parameters such as safety, efficacy, and lower dosing frequency of IL-23 biologics will
help them retain market share.
Ilumya is covered in the Medicare part-B plans. We are also seeing some commercial
plans/PBMs covering Ilumya under higher tiers with prior approval requirement. Other IL-23
biologics--Tremfya and Skyrizi are covered in tier-2 and 3 commercial plans. If Ilumya wins
major access to the formulary coverage, it will be very favorable for further market share gains.
If Ilumya grabs double-digit market share, it has high probability of becoming a global
blockbuster drug.
Sun Pharma’s commercial partner in Europe, Almirall, has launched Ilumya in Europe under the
name Ilumetri, as a self-injectable product and has received promising response. Sun Pharma
If Ilumya captures ~10% has also launched Ilumya in Australia and Japan. The Japanese market is worth ~$100 mn,
market share, it can and is growing at >20% YoY rate. This implies it should reach ~$200 mn by 2024. If Ilumya
generate ~$20 mn revenue captures ~10% market share, it can generate ~$20 mn revenue in Japan.
in Japan.
May 10, 2021 10

Exhibit 28: Ilumya’s coverage in commercial insurance plans/PBMs, see further scope of improvement
Aetna Anthem- Cigna CVS Express Humana OptumRx United
Blue cross Caremark scripts Healthcare
Ilumya Covered in 2 Not covered Covered in tier Not covered Covered Not covered Covered, PA Not covered
plans in tier 5 3, PA required under tier required
3
Skyrizi Covered in Covered Tier 2 coverage Tier 2 with Preferred Mostly Preferred under Covered
tier 4, some under tier 3, with preference preference under tier covered in tier 2 and not under tier 2
plans required PA required and some plans 2, PA tier 3/4, PA preferred under with
PA require PA required required tier 3, PA required preference, PA
required
Tremfya Covered in Covered Tier 2 coverage Covered Preferred Mostly Preferred under Covered
tier 4, some under tier 3, with preference under Tier under tier covered in tier 2, PA required under tier two
plans required PA required and some plans 2, PA 2, PA tier 3/4, PA with
PA require PA required required required preference, PA
required
Source: Decision Resources Group, AMSEC Research. PA - prior authorization, Ilumya is covered by Medicare under part B with a J code J3245, the list is representative,
Tremfya not covered in Medicare as per GoodRx.
Exhibit 30: Ilumetri & IL-23 market share in new

Exhibit 29: Ilumetri’s performance in Europe
prescriptions in Europe
$ mn
14
12
9 9
6
5 5
3
1
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2018 2019 2019 2019 2019 2020 2020 2020 2020
Source: Almirall, AMSEC Research
May 10, 2021 11

Cequa – Addressing a critical public health issue

Dry eye disease (DED) also called keratoconjunctivitis sicca is a chronic condition in which eyes
are not lubricated sufficiently. The main causes are lifestyle changes, increasing prevalence of
diabetes, growing elderly population, increased use of electronic devices/contact lenses, and so
on. It impacts women more than men and its prevalence increases with age. People who wear
contact lenses are four times more likely to develop DED. About 17.2 mn Americans are
diagnosed with DED, but only 25% seek treatment and 10% visit doctors for chronic therapy.
The prevalence rate of DED is 9.6% in the UK (adult women), 11.0% in Spain, and 21.9% in
France. The global prevalence of DED is estimated in the range of 5-30% (in those above 50
years of age).
There are two types of dry eye diseases: 1) evaporative dry eye syndrome (tear deficiency) – 85%
of the cases and 2) aqueous dry eye syndrome (dysfunction of gland that secretes lipid/oil on
eye surface) – 10-15% of the cases. (Link1 link2). Two types of drugs are being used in the
treatment of DED: 1) OTCs that only moisten eyes (several drugs in the market) 2) Rx drugs that
offer long term solution (Cequa, Xiidra, Restasis)
Exhibit 31: Types of dry eye diseases
Source: AMSEC Research, Review of Optometry
Exhibit 32: Currently approved drugs to treat dry eye disease

Drug Approved API Manufacturer Schirmer test scores / Indication Dosing (No of Price per
in other efficacy data drops) unit
Eysuvis 2020 Loteprednol etabonate Kala Pharma Not available dry eye flares 4 x for 14 days 59.63
0.025%
Cequa 2019 Cyclosporine 0.09% Sun Pharma 16.6-16.8% (84 days) long-term 2 per day 8.98
Xiidra 2016 Lifitegrast Takeda-Shire improvement in 3 long-term 2 per day 9.8–10.5
months
Restasis 2003 Cyclosporine 0.05% Allergan Pharma 15% (six months) long-term 2 per day 10.9-11
Source: AMSEC Research, #Dry Eye Flares is acute condition
Exhibit 33: Potential new drug candidates to treat dry eye disease
Brand Drug Status
Reproxalap ldeyra Therapeutics NDA submitted
ECF843 Novartis Phase II
Tavilermide Mimetogen Pharmaceuticals USA Phase III
ClclASol Novaliq Phase III
NOV03 Novaliq/Bausch Health Phase III
Lacripep TearSolutions Inc. Phase II
RGN-259 Regenerx Phase III
Exhibit 34: Failed drug candidates for dry eye disease

Candidate Sponsor Phase Year
TOP1630 Topivert Pharma Phase III 2020
Tivanisiran Sylentis Phase III 2019
Voclosporin Aurinia Pharmaceuticals phase II/III 2020
EBI-005 Eleven Biotherapeutics 2016
May 10, 2021 12

Cequa’s nanomicellar tech – the highest FDA approved concentration of cyclosporine

Cequa uses nanomicellar technology, which improves the bioavailability and physicochemical
stability of the cyclosporine (CsA). Thus, the CsA can penetrate in the ocular surface tissues in
higher concentrations. As per studies, patients on Cequa show early improvement in signs and
symptoms as compared to other CsA formulations.
Why Cequa can be a mid-term solution: Discontinuation of treatment by DED patients is

common. As per research by Novaliq and Alderya Therapeutics, 60% patients discontinue their
therapy within 12 months due to slow visible results.
Out of the approved therapies, Restasis is the oldest approved drug (close to expiry), while Xiidra
The global dry eye market is
pegged at $4.7 bn in 2019, was approved in 2016. Xiidra is the only indication that improves one sign and one symptom,
and is expected to grow by but has safety concerns. Whereas, Restasis takes effect very slowly. Sun Pharma’s Cequa offers
5.6% CAGR to reach $6.9 bn higher penetration of cyclosporine and shows faster results than Restasis. Unlike Xiidra, Cequa
by 2026 also does not lead to a metallic taste when used by patients. Moreover, being a newer
medication, Cequa is relatively safer and has better onset than Restasis. It is prescribed by
physicians if Restasis and/or Xiidra fail currently. We believe it has a strong potential to gain
market share.
Setting eyes on a big opportunity: The global dry eye market is pegged at $4.2 bn in 2019
and is expected to grow by 6.9% CAGR to reach $7.7 bn by 2026. The North American DED
market, which was pegged at ~$2.4 bn in 2018 can double in size to reach ~$4.3 bn in 2026
(our estimate), indicating a significant growth opportunity for Sun Pharma in the DED market.
Note that DED is an underdiagnosed disease, and it becomes prevalent in the elderly population
(age 40+).
Cequa peak revenue estimate: The increase in prevalence and improving diagnosis of DED
is leading to 1.7x increase in the chronic DED patient population in the US. Based on our
forecast, we think, Cequa can achieve peak sales in the range of $200-220mn.
Bird’s eye view: Dry eye disease is mostly prevalent in the older population (40+) and prominent in women. From the research
papers that we have read, we believe DED is an under-researched disease. Current understanding of the disease is based on research
conducted 10-15 years ago. As per the NCBI research paper, 75% of the research papers were published after 2006 and only one
paper after 2017. The treatment options are also very limited with cyclosporin formulations dominating the therapy. Lifitegrast and
Loteprednol etabonate are the novel options approved in the past five years. New research could improve the understating of this
disease. Note that several drug candidates have failed in Phase III trials. Hence, there are limited treatment options available. The
DED market is growing and in the absence of many treatments, the currently approved drugs are at an advantage. Restasis, pending
for the expiry, has launched a multidose product and we are not seeing major change in market dynamics, as both Restasis and
Restasis multidose maintain average Rx count and their share in CsA formulations. Thus, Sun Pharma can gain market share over its
better bioavailability of CsA compared to other CsAs.
May 10, 2021 13

BromSite – Better efficiency vs other Bromfenac formulations

BromSite is a non-steroidal anti-inflammatory drug (NSAID) indicated to treat eye swelling and
pain after cataract surgery. In the two different clinical studies, 76.8% and 82.1% of the patients
experienced relief from pain on the first day with BromSite than they did on placebo (48.2% and
62.4%). Moreover, more patients (57.1% and 38.1%) saw relief from inflammation on day 15
than on placebo (22.4% and 18.8%). BromSite’s competitor Bausch and Lomb’s Bromfenac
Sodium drug Prolensa (0.075%) also has comparable efficacy on the first day while BromSite
has better efficacy over Prolensa as per at least one study. Prolensa has 16.8% of the TRx market
share and had revenue of $113 mn in 2017. We estimate Prolensa’s US revenue at $140 mn
in 2020.
Market for Bromfenac Sodium formulations in the US grew at 7-8% CAGR to ~$215 mn in
2014-2019, but declined to ~$195 mn in 2020, according to our estimate. If the market returns
to normalcy in 2022, we believe BromSite can generate revenue of $55-60 mn in FY23E,
assuming 25% of the value market share in FY23E.
Exhibit 35: Race to the top - Bromfenac market share Exhibit 36: Why BromSite has a better future
Pain-free on Inflammation-free on
70
Day 1 Day 15
60
50 Drug
40 Study 1 Study 2 Study 1 Study 2
30
20
BromSite 76.8% 82.1% 57.1% 38.1%
10
0
Jan-20
Jan-21
Sep-19
Sep-20
May-19
May-20
Mar-19
Mar-20
Jul-19
Jul-20
Nov-19
Nov-20
Prolensa 76.4% 81.3% 49.1% 48.2%
Bromsite Prolensa Bromfenac Sodium Placebo 48.2% 62.4% 18.8% 22.4%
Source: Bloomberg, Sun Pharma, AMSEC Research
Odomzo – Promising drug with gradual market share gains

Odomzo (Sonidegib Phosphate) is a hedgehog pathway inhibitor indicated to treat locally
advanced basal cell carcinoma that has recurred. Basal cell carcinoma (BCC) is the most
malignant type of skin cancer with increasing incident rates (1.45x between 1967-84 and 2000-
10). There are two types BCC: locally advanced BCC (laBCC) and Metastatic BCC (mBCC).
According to estimates by Skin Cancer Foundation, every year, ~3.6 million cases of BCC are
diagnosed in the US. Of this, ~80% are laBCC.
The Big C - Treatment options for basal cell carcinoma

To treat BCC, radiation therapy (43.4%) and excisional surgery (23.5%) are commonly used as
the first-line treatment. Complete response is achieved in 51.9% and 53.7% patients after fist-
line surgery and first-line radiation, respectively, while partial response is achieved in 25.9%
and 22% patients. After the first-line of treatment, the median overall survival was 78.8 months
(~12.5 years), and recurrence-free cure rate was 85-90%. Other therapies are photodynamic
therapy with photosensitizers, pharmacologic therapy, etc. As per the studies, recurrence rate
post-surgery was 10.1% and 8.7% after the radiation therapy.
FDA has approved three hedgehog pathway inhibitors i.e., 1) Erivedge (vismodegib by Roche
for selective laBCC and mBCC patients) 2) Odomzo (Sonidegib by Sun Pharma for selective
laBCC patients) and 3) Daurismo (Glasdegib by Pfizer for acute myeloid leukemia).
Potential to multiply - Revenue assumptions for Odomzo

Odomzo’s competitor drug in laBCC is Roche’s Erivedge (vismodegib), which was approved in
2012. Clinical trial data suggests Odomzo has better efficacy than the other two drugs.
The market for hedgehog pathway inhibitors is growing at ~4% CAGR in volumes and ~9%
CAGR in value as per Bloomberg data. Odomzo’s share in the category is 18%; it has gained
~800bps market share in the past three years. We believe the market would be worth ~$250
mn in FY23E and assuming ~25% market share, Odomzo should be able to generate $65 mn
revenue in FY23E in the US.
May 10, 2021 14

Exhibit 37: Fighting BCC – What studies say Exhibit 38: Adverse events on Odomzo vs. Erivedge
Complete Partial Total Muscle
Alopecia Dysgeusia Fatigue Nausea
response response ORR spasms
Odomzo 5% 52% 56% Odomzo 54% 53% 46% 41% 39%
Erivedge 20.6% 22.2% 43% Erivedge 72% 64% 55% 40% 30%
Note: PR - 50% reduction diameter of lesions, ORR - objective response rate
Exhibit 40: Mapping the competitor – Erivedge’s revenue

Exhibit 39: Steady climb – Gradual market share gain
pie
($ Mn)
99.6 97.3 94.7
89.4 86.0 83.7 81.5 95 98
89 100
70
18.5 52
14.0 16.3
10.6
2.7 5.3 187 198
0.4 163 163
122 135
2015 2016 2017 2018 2019 2020 2021

2015 2016 2017 2018 2019 2020
Odomzo Erivedge
US Other countries
Source: Bloomberg, Roche, AMSEC Research
Exhibit 41: An exhaustive specialty product pipeline in Sun Pharma’s kitty

Name of the drug Formulation/Indication Comments/expectations
Aminolevulinic acid HCL
Levulan Kerastick Currently no generic competition, expect $90 mn revenue in FY23E
solution/Actinic keratoses
Going off patent in September-2021 but Teva (Actavis) has received final approval and
Isotretinoin/Persistent severe
Absorica the generic can be expected any time. We expect Absorica’s revenue to decline to $26
(nodular) acne
mn in FY23E
Low dose version of Absorica. Sun Pharma has been able to shift ~23% of Absorica
Isotretinoin/Persistent severe
Absorica LD prescriptions to LD version. The shift to LD version from Absorica got impacted due to
(nodular) acne
the COVID-19 pandemic. We are expecting ~$40 mn revenue in FY23E.
Abiraterone acetate/Metastatic
Abiraterone acetate generics are available in 250mg and 500mg strengths, expect
Yonsa castration-resistant prostate
Yonsa to be a small product with potential of $24 mn in FY23E
cancer
Available in the IV solution, Gemcitabine is already off-patent, but Sun’s product is in
Gemcitabine HCL Intravenous the Ready to Administer bag and is administered at the hospitals. We believe this product
Infugem
solution/Various types of cancers got impacted due to the pandemic and expect it to be a small product (<$10 mn) due
to the availability of generics.
Latanoprost generics in solutions/drops are available. Branded alternatives like
Latanoprost 0.005% Emulsion/
Xelpros Rocklatan and Vyzulta are also available hence Xelpros is likely to be a small product at
Glaucoma
$10 mn in FY23E.
Sun’s product has a different delivery system, capsule contents to be sprinkled on the
Metoprolol Succinate capsule/
Kapspargo Sprinkle food. Metoprolol Succinate tablets are already off patent, hence not a drug with sizable
Blood pressure
potential.
Rosuvastatin Calcium capsule/ Different delivery system, Rosuvastatin Calcium tablets are already off patent, hence not
Ezallor Sprinkle
Blood pressure a drug with sizable potential.
Duloxetine Hydrochloride Different delivery system, Duloxetine Hydrochloride is already off patent, hence not a
Drizalma Sprinkle
capsule/Depression & anxiety drug with sizable potential
Source: Bloomberg, Sun Pharma, AMSEC Research
May 10, 2021 15

In Sun’s bag - Other potential specialty drugs in clinical trials

SCD-044 – Oral drug for Psoriasis
In May 2020, Sun Pharma in-licensed SCD-044 from Sun Pharma Advanced Research Company
(SPARC), and it is in phase II clinical trials. It is a novel drug Sphingosine 1-phosphate 1 (S1P1)
antagonist in patients with moderate to severe plaque psoriasis atopic dermatitis and other
auto-immune disorders.
Sphingosine 1-phosphate evokes a variety of cellular responses by stimulation of five members

(S1P1, S1P2, S1P3, S1P4, and S1P5) of the endothelial cell differentiation gene receptor family.
Sphingosine-1-phosphate signaling regulates important cell processes, including cell
proliferation and apoptosis. According to the studies (study1 and Study 2), molecules inhibiting
S1P signaling can be effective and beneficial. SCD-044 aims to inhibit S1P1 signaling and is
currently in phase II of the study, which will enroll ~240 subjects with primary results expected
in 2022.
Even though Sun has Ilumya Even though Sun has Ilumya for moderate-to-severe plaque Psoriasis, it believes there is a
for moderate-to-severe market for relatively safe oral drugs. For example, Otelza is an oral drug for non-biologic
plaque Psoriasis, it believes treatment for moderate-to-severe plaque psoriasis and psoriatic arthritis. Amgen had bought
there is a market for Otelza from Celgene for $13.4 bn. The drug was approved in 2014 and clocked $2.2 bn in
relatively safe oral drugs sales in 2020, which indicates the potential of oral agents in psoriasis.
MM-II - Novel drug candidate for symptomatic knee pain in osteoarthritic patients
In-licensed from Moebius Medical, MM-II is an intra-articular bio-lubricant made of liposomes
suspended in aqueous solution. MM-II lubricates arthritic knee joints to reduce friction and wear
that leads to joint pain reduction. It is a potential novel drug candidate for the treatment of
symptomatic knee pain in osteoarthritic patients. The drug is currently in phase II studies, which
will be completed in November 2021.
Existing treatment options are either surgery or taking pain management medicines such as
duloxetine (Cymbalta), pregabalin (Lyrica), NSAIDs, analgesics, etc. In the clinical studies, MM-
II has shown faster response to long-term pain compared to Durolane (hyaluronic acid) injection
(launched in 2018). This led to lower intake of daily consumption of Acetaminophen in the MM-
II injected population.
It is estimated that globally a total of ~240 mn people are affected by osteoarthritis, and in the
US alone, knee osteoarthritis affects more than 14 million. Symptomatic knee osteoarthritis is
prevalent in ~13% of women and ~10% of men >60 years, and ~40% in above 70 years of
age.
May 10, 2021 16

Sun Pharma’s Cash Cow – Domestic Business

With an 8.2% market share and leading chronic therapies, Sun Pharma is the largest player in
India. In 9MFY21, cardiology, neuropsychiatry and diabetology segments contributed 46% to
the domestic revenue. Sun Pharma has the highest prescriptions across nine therapies as of
October 2020. 30 of its brands are in the country’s top 300 pharmaceutical brands and its top
10 brands contribute ~1/5th of the total revenue. It has a field force of 10,900 with one of the
highest productivity/medical representative (MR) in India due to 1) high brand recall, 2)
leadership in most therapies and 3) focus on chronic and sub-chronic therapies.
Exhibit 42: Ray of optimism: Despite an 80 bps loss due to restructuring, Sun’s market share has been stable since
2HFY19
10
Ranbaxy Merger Impact of distribution change
9
Market share in %
Inventory adjustment, withdrawl

7
of bonus offer, product
divestments Planned one-time inventory
6 reduction on higher base
5
Q4FY14
Q1FY15
Q2FY15
Q3FY15
Q4FY15
Q1FY16
Q2FY16
Q3FY16
Q4FY16
Q1FY17
Q2FY17
Q3FY17
Q4FY17
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
Sun Pharma’s domestic revenue has grown at a CAGR of 8.6% over FY15-20 vs. IPM (Indian
pharmaceutical market) growth of 11% during the period. Sun’s market share stood at 9% in
4QFY15 (post Ranbaxy acquisition), but by the end of 9MFY21, it fell to 8.2%. This 80 bps erosion
during FY16-19 in India can be explained in two phases:
Phase I – FY15-18: While integrating Ranbaxy’s (acute/chronic 70/30) business, Sun divested
seven brands, two CNS divisions, and withdrew the discounts/rebates/bonuses offered by
Ranbaxy on its acute products, which impacted its performance. Due to the acquisition of the
major acute portfolio (anti-infectives and gastro enterology), growth also got impacted as the
seasonality factor kicked in.
Phase II – FY18-20: Sun’s domestic business grew by 10%, in line with the IPM growth due to
the restructuring that the company undertook in FY19, where it 1) reduced the inventory with
the supply chain in 2QFY19 to improve working capital efficiency and 2) transitioned domestic
With an 8.2% market share distribution from Aditya Medisales Ltd to Sun Pharma Distributors Ltd, which led to Rs.11 bn
and leading chronic impact on the annual domestic revenue, and also hit its market share.
therapies, Sun Pharma is
the largest pharma player Over the last four to five years, companies such as Torrent Pharma, Alkem, Eris Lifesciences,
in India Lupin, and others, have also ramped up their presence in chronic therapies, making the space
more competitive. That led to Sun Pharma losing 50-150 bps market share each in cardiology,
CNS and Diabetology.
Point to note: After completion of restructuring in 4QFY19, Sun Pharma’s market share settled
at 8.2%. In 4QFY20, it moved up to 8.4%, but returned to 8.2% as COVID-19 disruption
impacted the IPM.
May 10, 2021 17

Cream of the crop – Sun’s top 10 brands growing at 12% CAGR
Sun Pharma’s top 10 brands currently contribute 22% to revenue vs. 20% in FY17.
These ten brands have grown at ~12% CAGR over the past four years, vs. 9%
revenue CAGR in Sun’s domestic business. And eight of the 10 large brands are
growing in double digits.
Levipil (Levetiracetam- epilepsy drug), its largest brand, has grown at 16% CAGR (2017-20).
OTC brand Revital H (nutraceutical) and anti-allergic brand Montek-Lc (Levocetirizine +
Montelukast) have grown at >15% CAGR during this period. Even in volume terms, Levipil,
Revital H, Volini, Istamet and Montek-Lc have grown at >8% CAGR.
On the therapeutic level, FY17-19 volumes in CNS, Cardiac, VMN, Gynecology and Respiratory
have grown at >4% CAGR (before pandemic began on MAT basis) but the same was offset by
negative volume growth in GI, anti-infective and pain/analgesics segments.
Sun Pharma recently indicated that it will focus on the smaller towns to drive growth in brands
and its domestic business overall. The company is also likely to de-clutter its branded business.
It expanded the sales force by 10% in FY20 to cover more territories, launch new products and
build mega brands.
Exhibit 43: The not-so-elusive double-digit growth for Sun’s top brands’ sales (MAT basis)
(Rs bn) (CAGR %)

10.2
16.4
10.1
7.3 10.7 12.9
11.6 17.8 9.0
16.9
2.0
3.1
2.3
3.1
1.7
2.4
1.9
2.5
2.0
2.4
1.6
2.2
1.3
2.2
1.4
2.0
1.6
2.0
1.0
1.5
Dec-17
Dec-20
Dec-17
Dec-20
Dec-17
Dec-20
Dec-17
Dec-20
Dec-17
Dec-20
Dec-17
Dec-20
Dec-17
Dec-20
Dec-17
Dec-20
Dec-17
Dec-20
Dec-17
Dec-20
Levipil Volini Istamet Gemer Rosuvas Susten Revital H Pantocid-D Pantocid Montek-Lc
Source: Industry, AMSEC Research

One of the Best-in-Class Field Force Productivity
Aided by a growing branded business and focus on chronic therapies, Sun Pharma’s MR
productivity/year in India was at Rs.10.4 mn/year in FY14, but fell to Rs.7.4 mn/year in FY15,
post the Ranbaxy acquisition. The company has maintained its field force at ~9,200 since the
acquisition, pushing MR productivity higher to Rs.10.4 mn in FY20, (8% below pre-Ranbaxy level
productivity of Rs.11 mn/year). Due to the expansion of field force in FY20 and slower growth
in IPM in FY21 amid COVID-19, MR productivity in FY21E is likely to decline. However, this will
impact all pharma companies in domestic formulations. With the expectation of normalcy in IPM
in FY22E/FY23E and Sun Pharma’s growth forecast, we expect MR productivity to improve to
Rs.11.6 mn/year in FY23E (highest ever for the company).
May 10, 2021 18

Exhibit 44: Second to none - Field force productivity in India Exhibit 45: Sun Pharma’s field force productivity trend
(Rs Mn / Year) (Rs Mn / Year) Ranbaxy impact COVID-19 impact
16
11.1 11
10.1 10.0
10 9.2 8.8 9.3
8 9 9 8.3 8.6
6 6 7.4 7.8
4 7.1
4 4
Cipla
Sun Pharma
Lupin
Reddy
Alkem
Abbott India
JB Chemicals
Healthcare
Alembic
Pharma
Torrent
Cadila
FY10
FY11
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
E
Sun Pharma Labs – Key revenue driver for Sun Pharma’s domestic business
Sun Pharma’s fully-owned subsidiary, Sun Pharma Laboratories Limited (SPLL), drives 2/3rd of
the company’s India business. SPLL is largely responsible for the company’s chronic business.
SPLL’s revenue and EBITDA have grown at a CAGR of 10%/14% over FY16-20. It has delivered
EBITDA margins of >42% over the past 5 years. Due to its superior profitability, the business
has made an incremental contribution to Sun Pharma’s consolidated EBITDA from 26% in FY16
to 51% in FY20. It also generates >Rs.15 bn of free cash flow every year, which is helping Sun
Pharma build its US specialty business.
Exhibit 46: Why SPLL is integral to Sun Pharma Exhibit 47: SPLL's revenue and EBITDA contribution
(Rs Bn) (%)
68.5 50.6
47.8
53.2 52.1
46.7 45.1
41.9 30.6
25.6 25.7
25.3 25.9 24.3
28.2 28.4 28.6 20.0
19.7 20.9
15.3 16.6 17.0 15.5
FY15 FY16 FY17 FY18 FY19 FY20 FY15 FY16 FY17 FY18 FY19 FY20
SPLL Revenue Sun domestic business ex SPLL Revenue contribution EBITDA contribution
Exhibit 48: SPLL's superior margin profile Exhibit 49: SPLL – The real cash cow for Sun Pharma
(Rs Bn) (%) (Rs Bn)
50.7 51.6
44.7 46.7
42.7
37.2
50.1
32.8 33.9
32.7 19.5
20.6 17.7 18.7

15.6
20.9
24.8
26.4
19.3
35.3
10.0 12.9 15.7

-10.2
SPLL EBITDA SPLL EBITDA Margins SPLL FCF Sun Pharma FCF
May 10, 2021 19

The Great Indian Opportunity for Sun Pharma

Sun Pharma’s focus on better brand coverage in small towns and cities can help the company
outperform IPM growth over medium to long term. Outperformance can be driven by market
share gains in chronic therapies (CNS, Cardiology and Diabetology). It would have been difficult
considering higher competition from smaller players, but Sun Pharma has one of the largest in-
licensed portfolios (relatively easier to scale-up) and strong relations with doctors across different
generations, leading to higher brand recall with less marketing effort.
In the dermatology segment, Sun Pharma has enjoyed ~18% revenue CAGR over FY15-20, and
We estimate Sun Pharma’s gained ~60bps market share (as per our estimates). We believe sustained performance of
domestic revenue at Rs.126
dermatology can also help the company gain market share. The recent move to invest in ABCD
bn by FY23E if the company
Technologies aims to link all the distributors to create a common platform, which will benefit
sustains its 8.2% market
share the company in medium to long term.
Overall, we believe IPM can grow at a CAGR of 8-9% over FY20-23E to reach ~$25 bn.
Assuming sustained 8.2% market share of Sun Pharma, we believe its domestic revenue can
reach levels of Rs.126 bn (~31% of the consolidated business) by FY23E. Assuming 32% EBITDA
margins, Sun’s domestic business can deliver Rs.40 bn in EBITDA (~44% of the consolidated
business) in FY23E.
May 10, 2021 20

US Generics – A sore point for Sun Pharma

Sun Pharma’s US generics business (including Taro) has been under pressure since
FY17 due to erosion in the base business (FY16-17 had gGleevec 180-day exclusivity),
higher competition and US channel consolidation.
As per our estimate, Sun’s US generics revenue, which stood at $1.8 bn in FY16 has declined
at 13% CAGR over FY16-20 to ~$1.1 bn. During this period, Sun also had a one-off NBO
opportunity of ~$120 mn that lasted for two quarters (4QFY19 and 1QFY20). The business
likely saw continued erosion of 16-17% (Sun + Taro combined) in FY21 due to Taro’s high
reliance on dermatology products. We believe US generics revenue will drop below $900 mn in
FY21 due to a lack of major product launches and continued erosion of the base business. The
management also remained dovish on the US generics business, which is reflected in their
generic R&D expenditure and slower pace of ANDA filings in the US. Taro Pharma, due to its
higher dependence on the US dermatology business, may remain under pressure.
Exhibit 51: Fewer ANDA filings for Sun’s US generics

Exhibit 50: Value erosion driven by industry dynamics
business
($ bn) (%)
75 78 78 72 68
18.4 121 112 125 120 119 108 105 95 83
-5.3
-16.9 -16.4
422
418
422
428
432
441
453
466
472
481
483
483
495
497
-37.4 Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY20
Q3FY20
Q4FY20
Q1FY21
Q2FY21
Q3FY21
1.7 1.1 1.3 1.1 0.9
FY17 FY18 FY19 FY20 FY21E

US generics (Sun + Taro) YoY growth (%) Approved Pending
Source: Sun Pharma, Taro Pharma, AMSEC Research
Taro Pharma – The weak link in Sun’s US business

Taro is Sun Pharma’s majority-owned subsidiary (77%) with a focus on generics and OTC
products. It derives 77% revenue from the US, 15% from Canada, 7% from Israel, and the rest
from other countries. Dermatology makes up for 63% of Taro’s revenue, while 17% comes from
CNS, and the rest is from therapies such as cardiology, gastroenterology, etc.
Due to consolidation in the channel and higher competition in US generics, Taro’s US revenue
has declined at 13% over FY16-20, while Canada revenue has grown at 15% CAGR. Thus,
Due to sluggish R&D activity contribution from US declined from 91% in FY16 to 77% in FY20. Due to pricing pressure gross
and COVID fallout, Taro’s margins have contracted by 20%. This combined with operating de-leverage has led to
revenue could remain under contraction of EBITDA margins by ~24% over FY16-20. Consequently, Taro’s contribution to
pressure until sizable Sun Pharma’s consolidated revenue has shrunk from 42% in FY16 to 33% in FY20.
product opportunities
emerge Over FY16-20, Taro trimmed its R&D expenditure (in absolute terms), and filed fewer ANDAs
with the USFDA. Currently, Taro has 17 ANDAs awaiting FDA approval vs. 60 ANDAs that were
awaiting approval in FY15. Taro’s biggest revenue contributor-dermatology-was impacted due
to the COVID-19 pandemic. That led to a 15% decline in 9MFY21 revenue, and can continue
to weigh until the next few quarters. Due to overall sluggish R&D activity and COVID fallout, we
believe Taro’s revenue could remain under pressure until sizable product opportunities emerge.
May 10, 2021 21

Exhibit 52: Small silver lining for Taro in Canada Exhibit 53: US’ shrinking presence in Taro’s revenue mix
($ mn) (CAGR %) (%)
4
6 3
6 4 7 7 8
7 10 13 15
-13
90 91 89 83 80 77
15 15
865
496
57
98
29
51
US Canada Other US Canada Other markets
Exhibit 54: Taro’s weak margins weigh on generics Exhibit 55: Taro’s declining contribution in Sun’s US
business revenue
(%) (%)
82 41.9
76 40.5
70 67
62 38.4
66 35.2
60 33.3
48 47 30.5
42
FY16 FY17 FY18 FY19 FY20

Gross margins EBITDA margins FY16 FY17 FY18 FY19 FY20 FY21E
Source: Taro Pharma, AMSEC Research
Why Halol is losing relevance in Sun Pharma’s US business

Halol once contributed in high single digits to US revenue (when it received a warning letter)
and has capabilities across dosage forms, but with the weakness in US generics business, it is
no more a key facility for Sun Pharma. Its contribution amounted to just 3-4% of the US business
in FY20 (~$60 mn), down from an estimated peak of ~$160 mn.
In 2018, 19 products were awaiting approval from Halol. The pipeline likely decreased after the
company received some approvals after the warning letter was lifted in the same year.
Revenue contribution from Halol is expected to fall further on the back of erosion of base
business products and as Sun focuses on specialty drugs in the US.
May 10, 2021 22

Exhibit 56: Sun Pharma’s Halol facility – Warning letters and FDA audits
Sept-2014 •USFDA inspection at Halol, 23 observations
Dec -2015 •USFDA issues warning letter with 6 observations to Halol over cGMP violations
November 2016. •USFDA issues 9 observations after re-inspection
Feb 2018 •Re-inspection leads to 3 observations
•Halol received EIR stating facility clearance (VAI) (Halol contribution down to 3-4% of
June 2018
US sales)
Dec 2019 •Form 483 with 8 observations in inspection
Jan 2020 •USFDA classifies Halol as OAI, 19 products awaiting approval by 4QFY19
Exhibit 57: Sun Pharma + Taro's performance in USFDA Audits

2012 2013 2014 2015 2016 2017 2018 2019 2020
NAI 0 1 1 3 2 2 14 6 0
VAI 11 4 4 6 2 3 3 5 3
OAI 2 2 1 0 1 0 0 1 0
Source: USFDA, Sun Pharma, AMSEC Research. 2013- OAI on Detroit and Karkhadi facility, Detroit facility closed
afterwards, Karkhadi is under import alert since 2015 and has negligible revenue contribution, OAI from 2014 are at Halol
facility
What next for Sun Pharma’s US generics business

Oral products make up a large chunk (two-third) of Sun Pharma’s US generics portfolio, as per
our orange book data analysis. That is followed by topicals and injectables. Sun Pharma had 90
ANDAs awaiting approval as of 9MFY21, which fell from 159 in FY16.
Sun Pharma’s US generic
business is muddled with As per our research, we believe Sun’s generic business is still a couple of years away from
uncertainty. Hence, we meaningful opportunities. Two near-term opportunities would be gRevlimid and gIbrance.
estimate revenue of $965 However, about 10 companies are already in litigation with innovators of both the drugs. The
mn in FY23E competition in gRevlimid went up due to the settlements between BMS/Celgene and many
generic manufacturers.
We observe that most litigated products already have over four generic aspirants. In this case,
gXifaxan, gNinlaro, gKalydeco, gXeljanz XR, gVraylar and gLenvima are the products that could
have good potential in the future, but for beyond our forecast timeline and FY24E. Overall, we
are building in revenue of $965 mn from the US generics business in FY23E.
May 10, 2021 23

Exhibit 58: Sun’s ANDA pipeline indicates shrinking opportunities amid margin
pressure
438 413 427

422 453 483 497
311 344
250
147 138 134 159 159 157 139 118 98 90
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 9MFY21
Awaiting ANDAs Approved ANDAs
Exhibit 59: Potential Para IV opportunities based on filed litigations and DMFs
US sales
Brand Innovator Patent expiry No of filers
($ mn)
Sucampo Pharma
Amitiza 2021 7 ~227
Americas LLC
Revlimid BMS (Celgene) 2022 11, settlements with Natco, Alvogen/Lotus, Cipla, Dr. Reddy’s, Cadila 8291
Ibrance Pfizer Inc Beyond 2023 9 3,634
Xifaxan Salix Beyond 2024 3 ~1000
Sucampo Pharma
Amitiza Beyond 2024 6 400
Americas LLC
Millennium
Ninlaro Beyond 2024 1 600-400
Pharmaceuticals Inc
Kalydeco Vertex Pharma Beyond 2025 1 600-400
Viberzi Allergan Beyond 2025 6 188
Xeljanz XR Pfizer Inc Beyond 2025 4 (two settlements - Zydus, Micro Labs) 1,706
Imbruvica Pharmacyclics Beyond 2026 11 4,305
Glyxambi Boehringer Ingelheim Beyond 2025 10-11 242
Jardiance Boehringer Ingelheim Beyond 2027 10-11 4368
Trijardy XR Boehringer Ingelheim Beyond 2027 NA NA
Vraylar Allergan Beyond 2028 3 951
Lenvima Eisai Inc Beyond 2026 2 ~400
Source: Sun Pharma, USFDA, RPX insight, US Court dockets, AMSEC Research, NA – Not available
May 10, 2021 24

A Reach Far and Wide – Emerging Markets and ROW

Among EMs, Sun Pharma has a presence in countries such as Romania, Russia, South Africa,
Bangladesh, Malaysia and Brazil, mostly into branded business (ex-South Africa, which is a
tender-driven business). The company also has a sales force of ~2,300 in emerging markets,
which has remained stable for many years. It has seven manufacturing facilities in these
countries and its EM revenue has grown at 4.8% CAGR over FY16-20. We build in revenue
CAGR for its EM business at 5% over FY20-23E.
In its rest-of-the-world (ROW) business, the company is involved in injectables and hospital
products across Western Europe, Canada, Japan, Australia and New Zealand. In FY19, Sun
Pharma acquired Pola Pharma in Japan, which has topical and injectable products and two local
facilities. Owing to this acquisition, Sun Pharma’s has seen 18% CAGR growth in ROW over
FY16-20. However, we expect 7% CAGR over FY20-23E. Although, now that Sun Pharma has
launched Ilumya in Japan through Pola Pharma, it should improve revenue growth in the region.
Exhibit 61: How the ROW business stacks up for Sun

Exhibit 60: Encouraging optics – Sun’s EM business trend
Pharma
($ bn) (%) ($ bn) (%)
23.3 29.4
19.9
11.3 16.8
7.0 7.0 7.0 7.0
6.7
1.9 1.4 1.3 3.1
-10.3 -13.4
548 676 752 766 777 787 842 901 330 385 462 493 638 658 704 753
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
EM revenue Growth (%) ROW revenue Growth (%)

May 10, 2021 25

API Business - Another key ingredient for Sun Pharma

Sun Pharma’s active pharmaceutical ingredients (API) business contributes 6% to its consolidated
revenue. Its API business supports Sun’s captive requirement and is strategic for Sun’s
competitiveness. Its API portfolio has >300 products across therapeutic segments and has grown
four-fold in volumes over four years (considering captive + external consumption). After
declining 13% YoY in FY16, the API business has grown at 17% CAGR over FY17-20. We
expect the API business to grow at 12% CAGR over FY20-23E.
Exhibit 62: Sun Pharma’s pipeline in API business Exhibit 63: Total product filling in the API business
($ bn) (%)
41.5 431 443
422 428 413
396
23.6 305
323 329
298 291 291
14.1 12.0
10.7 8.1 10.0
-12.5
14.0 16.0 14.0 17.3 19.2 20.7 23.2 25.5
FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY16 FY17 FY18 FY19 FY20 9MFY21
API Business Growth (%) DMFs / CEP filed DMFs / CEP approved
May 10, 2021 26

Financial Performance – Due for a Turnaround

Sun Pharma’s financial performance has been subdued since FY18, which started with the loss
of gGleevec exclusivity and worsened with weak performance of the US generics business due
to competition, pricing pressure and channel consolidation. The weakness continued until FY20
as it ramped up investments in the specialty business. During this period Sun Pharma’s EBITDA
margins contracted to 21-22% levels and return on equity slipped to 9-11% over FY18-20.
The analysis of Sun Pharma’s ROE through the DuPont ratio explains its financial performance
over a decade. During FY18-20, its profitability halved (dragged down by US generics), while
asset turnover ratio contracted due to additional investments in specialty. This led to decline in
the capital productivity.
As US base stabilizes between $900 mn and $1 bn, and specialty business grows, we believe
Sun Pharma’s ROE will improve.
Exhibit 64: DuPont analysis of Sun Pharma’s ROE

FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
Asset turnover (x) 0.48 0.51 0.57 0.57 0.58 0.54 0.54 0.43 0.47 0.50 0.50 0.53 0.54
PAT margin (x) 0.32 0.33 0.32 0.35 0.17 0.18 0.22 0.11 0.13 0.12 0.19 0.17 0.17
Financial leverage (x) 1.25 1.29 1.31 1.52 1.85 1.59 1.61 1.63 1.50 1.44 1.42 1.39 1.37
ROE (%) 19.2 21.7 23.8 30.5 18.6 15.9 19.0 8.0 9.4 8.9 13.2 12.2 13.0
Exhibit 65: Banking on steady revenue growth Exhibit 66: India remains key to Sun’s revenue growth plans
(Rs bn) (%) (%)
12.1 11.9
10.1 9.0
5.4 6.0 6.0 6.3 6.3 6.3
11.5 12.1 14.0 14.8 14.3 14.1
2.1 18.7 18.8 17.1 17.7 17.1 16.8
26.7 23.3 19.9 19.3 18.0

31.3
7.0 9.4 10.7 12.2 13.4
6.2
-16.1 31
31 26 30 31 31
265 292 327 334 374 407
Revenue Growth (%) India US Specialty US generics (incl Taro) EM ROW API
Exhibit 67: Focus on specialty to invoke higher margin play Exhibit 68: Focus on superior profitability to aid PAT growth
(Rs bn) (%) (Rs bn) (%)
25.6 25.4 26.5 54.6
21.2 21.7 21.3 27.4
14.7
3.8 -1.3
-56.3
561 631 699 858 951 1,079 30 39 40 62 61 70
EBITDA EBITDA margins PAT PAT growth

May 10, 2021 27

Exhibit 69: On the path to redemption - Return ratios Exhibit 70: Eyes set on better cash flow generation
(%)
(%)
14.9
13.7 13.9
10.9 10.5 13.0 19 50 31 57 67

10.3 13.2 12.2
-10
9.4
8.9
8.0
ROCE ROE FCF
Why Sun Pharma’s capital allocation will be worth it

We estimate Sun Pharma has invested ~$912 mn in the US specialty business (new products,
not adjusted for inflation) over the past seven years. This does not include acquisition costs for
Absorica, Levulan, DTC/marketing spends and $50 mn in-licensing income from Almirall. This
front-loaded capital allocation and erosion of the US business has kept return ratios subdued
since FY18. Now that the US generics base seems to have stabilized between $900mn-$1bn,
and specialty business revenue are improving, we will see an upward trajectory of return ratios
in the future.
Sun Pharma’s major
specialty investments are The competition continues to intensify in the generics segment and complex generics or
showing results, and biosimilars require significant investments ($5-$100mn). Sun Pharma’s decision to invest in
providing long-term major specialty assets, with earnings visibility for long term, started showing positive results in
earnings visibility FY20. As prospects improve further, concerns about capital allocation will be allayed.
We believe the specialty business is equipping Sun Pharma with critical commercial
infrastructure and deeper understanding of commercialization of innovative products in the US.
This platform can be leveraged to launch more branded/patented drugs in future. We also do
not rule out any potential acquisition by Sun Pharma in the global specialty space once it has
gained necessary expertise in the field.
Exhibit 71: Costs of acquisition and cumulative R&D in specialty business

Cumulative R&D spend
BromSite, DexaSite
Odomzo
Xelpros
Ilumya
Cequa
50
-50 -19 -40
-80 -175
-150 -48
-250
$mn
-350
-450 -550
-550
-650
Source: AMSEC Research, the data excludes DTC/marketing spend, royalties, and milestone payments, and upfront
payment from Almirall
May 10, 2021 28

Exhibit 72: Sun Pharma’s quarterly performance since FY20

Particulars (Rs mn) Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21
Net Sales 83,742 81,234 81,547 81,849 75,853 85,531 88,365
Less Expenses
COGs 24,578 22,679 22,000 23,048 19,696 21,463 23,334
Employee 15,404 16,209 15,491 16,519 17,590 17,053 17,205
Other Expenses 23,806 24,448 25,643 28,652 20,132 25,082 23,768
EBITDA 19,954 17,897 18,412 13,630 18,435 21,933 24,059
Other Income 2,130 2,009 1,199 1,022 1,538 2,558 3,150
Depreciation 4,571 4,733 5,470 5,754 4,959 4,986 5,319
EBIT 17,513 15,173 14,141 8,898 15,013 19,505 21,889
Interest charge 1,041 839 630 518 520 333 261
PBT 16,473 14,334 13,512 8,381 14,494 19,172 21,628
Tax 1,461 2,660 3,276 831 2,459 -312 2,449
Minority Interest -1,139 -1,033 -1,102 -945 -578 -1,356 -656
Adj PAT 13,873 10,641 9,133 6,605 11,457 18,128 18,522
Extr. Income/(Expense) 0 0 0 -2,606 -28,013 0 0
Reported PAT 13,873 10,641 9,133 3,998 -16,557 18,128 18,522
EPS (Rs) 5.8 4.4 3.8 2.8 4.8 7.6 7.7
Opex Matrix
COGs 29.3% 27.9% 27.0% 28.2% 26.0% 25.1% 26.4%
Employee 18.4% 20.0% 19.0% 20.2% 23.2% 19.9% 19.5%
Other Exp 28.4% 30.1% 31.4% 35.0% 26.5% 29.3% 26.9%
EBITDA 23.8% 22.0% 22.6% 16.7% 24.3% 25.6% 27.2%
Revenue mix
India (Rs mn) 23,137 25,148 25,170 23,648 23,884 25,311 27,530
US ($mn) 424 339 350 375 282 335 374
Taro ($mn) 161 161 148 175 118 143 140
Emerging Markets ($mn) 194 201 195 187 173 210 204
ROW ($mn) 167 161 155 155 136 178 173
API (Rs mn) 4,610 4,681 5,030 4,834 5,537 5,104 4,500
May 10, 2021 29

Exhibit 73: Sun Pharma’s financials over the past 10 years

FY11-20 FY15-20 FY21-23E
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21E FY22E FY23E
CAGR CAGR CAGR
P&L Statement (Rs bn)
Revenue 57 80 113 161 274 285 316 265 291 328 335 374 407 21.4 3.7 10.2
Growth 42.9 40.0 40.9 42.3 70.3 4.0 10.9 -16.1 9.7 13.0 2.1 11.5 9.0
COGS 15 16 21 28 67 63 81 74 79 92 87 99 106
Staff Costs 8 12 15 21 45 48 49 54 60 64 68 70 75
Other Expense 15 20 28 43 84 92 85 81 89 103 94 109 118
EBITDA 19 32 49 70 78 82 101 56 63 70 86 95 108 15.3 -2.1 12.2
EBIT 21 34 49 71 72 78 94 49 56 56 74 79 90
PBT 20 34 49 71 66 73 90 44 50 53 73 78 89
Tax 1 3 8 7 9 9 12 9 6 8 7 12 14
Adj PAT 18 27 36 57 48 52 70 30 39 40 62 62 71 9.2 -3.4 7.1
Balance Sheet (Rs bn)
Working Capital 19 32 39 40 75 96 96 99 126 132 140 145 155
Inventory 15 21 26 31 57 64 68 69 79 79 87 92 96
Receivables 11 21 24 22 51 68 72 78 89 94 96 100 108
Payables 6 10 11 13 33 36 44 48 41 41 44 47 49
DEBT 4 3 2 25 76 83 81 98 99 76 71 61 55
Shareholder's
95 122 150 185 256 330 366 381 414 453 472 508 549
Equity
Cash & Cash
22 34 41 76 110 132 151 99 73 65 66 71 80
Equivalents
Current
19 16 13 20 21 7 2 41 40 49 50 56 61
Investments
Total assets 119 158 197 282 474 524 589 621 621 651 671 705 753
Cash Flow (Rs bn)

Operating Cash
23 22 34 40 56 67 71 39 22 66 49 80 93 12.4 3.1 37.2
Flow
CAPEX -4 -7 -9 -9 -23 -34 -37 -20 -32 -15 -19 -24 -26
Free Cash Flow 19 15 25 31 33 33 34 19 -10 50 31 57 67 11.6 8.9 47.2
Key Ratios
Adj EPS 7.6 11.1 14.9 23.6 19.9 21.8 29.0 12.7 16.2 16.8 25.9 25.8 29.7
ROE (%) 19.2 21.7 23.8 30.5 18.6 15.9 19.0 8.0 9.4 8.9 13.2 12.2 13.0
ROCE (%) 21.5 27.1 32.6 34.0 21.7 18.8 21.1 10.3 10.9 10.5 13.7 13.9 14.9
ROIC (%) 34.5 40.9 41.8 56.4 31.3 25.1 28.1 11.9 12.4 11.5 15.6 15.0 16.3
Asset Turnover (x) 0.5 0.5 0.6 0.6 0.6 0.5 0.5 0.4 0.5 0.5 0.5 0.5 0.5
Working Capital Days
Inventory 95 95 83 71 76 82 79 95 99 88 95 90 86
Receivables 70 95 78 50 68 87 83 108 112 105 105 98 97
Payables 41 45 34 30 44 46 51 66 52 46 48 46 44
Other Ratios
FCF/EBITDA (%) 96 48 51 44 42 40 34 35 -16 72 36 60 62
P/E 89.5 61.3 45.6 28.8 34.1 31.1 23.4 53.5 42.0 40.5 26.2 26.3 22.9
EV/EBITDA 81.9 49.7 32.4 22.4 20.2 19.3 15.4 28.3 25.6 22.8 18.5 16.4 14.3
P/BV 17.2 13.3 10.9 8.8 6.4 4.9 4.4 4.3 3.9 3.6 3.4 3.2 3.0
May 10, 2021 30

Attractively Priced – The Valuation Factor

We forecast Sun Pharma’s revenue/EBITDA/PAT to grow at 10%/7% CAGR over
FY21-23E. As the specialty business grows stronger, we expect return ratios to
expand by >400 bps by FY23E.
Sun Pharma currently trades at 26.3x/23x FY22E/FY23E EPS, i.e. at 7%/3% discount to its 10-
year average and 19%/16% discount to its 5-year average forward P/E multiple. We value Sun
Pharma at 27x of its FY23E EPS on the back of 1) improving execution in key specialty products,
2) expansion of its ROE and ROCE ratios going forward, 3) strong FCF generation and 4) cushion
from the FCF-generating domestic business. We are thus initiating coverage with a ‘buy’ rating
and price target of Rs.802.
Exhibit 74: 1-year forward P/E - Trading at a discount to its long-term average
60.0
54.7
50.0
40.0
30.0
27.
20.0 .6
25.6
10.0
12.7
0.0
Apr-10
Apr-11
Apr-12
Apr-13
Apr-14
Apr-15
Apr-16
Apr-17
Apr-18
Apr-19
Apr-20
Apr-21
Fwd P/E Min (x) Avg (x) Median (x) Max (x)
Exhibit 75: Priced right – Valuation comparison against peers

Company M.Cap FY21-23E CAGR P/E (x) EV/EBITDA (x) RoE (%) RoCE (%)
(Rs Bn) Revenue PAT FY21E FY22E FY 23E FY21E FY22E FY 23E FY21E FY22E FY 23E FY21E FY22E FY 23E
Sun Pharma 1,629 10.0 7.1 26.2 26.3 22.9 18.5 16.4 14.3 13.2 12.2 13.0 13.7 13.9 14.9
Lupin 542 14.7 58.5 48.0 25.3 19.1 21.1 13.4 10.3 8.5 14.1 16.0 10.1 16.1 17.9
Cipla 711 7.3 7.2 26.1 24.7 22.7 15.0 14.1 12.6 14.7 13.7 13.1 17.5 16.1 15.8
Dr. Reddy's 860 8.2 11.0 33.4 30.9 27.1 21.2 16.8 14.8 11.7 14.6 14.6 13.8 16.2 15.9
May 10, 2021 31

Risks at Play – What to Watch

Slower ramp-up in specialty products – The global specialty drugs industry is a competitive
turf for branded products. Sun Pharma faces significant competition from large and established
pharma companies in this space. The other players have deep experience in successful
commercialization and early ramp-up of branded products. Thus, any deceleration in ramping
up specialty products could be a negative for Sun Pharma.
Litigation challenge in branded products – Generic companies are known to challenge

patents of brands. Any such challenge that could lead to a negative outcome for Sun Pharma
will impact revenue potential of its litigated brands.
Slower growth in IPM/global business – After a year-long disruption due to COVID-19, we

expect normalcy will gradually return in pharma product sales. Sun Pharma generates one-third
of its revenue and >40% of EBITDA (our estimate) from India, which saw major disruption in
FY21. If the COVID-led roadblocks continue beyond CY2021, Sun Pharma may witness some
softness in margins.
Regulatory negative event – Sun Pharma’s Halol facility has been under OAI for more than
a year. While we believe it is not a key facility anymore due to its low revenue contribution,
prolonged remediation at the facility can attract costs, which can be perceived as negative
developments. Negative outcome of regulatory inspections at other key plants are also a
danger, although it looms over all pharma players. Sun Pharma has also outsourced
manufacturing of its key specialty products to CMOs, and any regulatory negative event with
the CMOs can also impact Sun Pharma’s global specialty sales.
May 10, 2021 32

Company Overview
Sun Pharma is the fourth-largest specialty generic pharma company globally. It is the largest
pharma company in India and the 10th-largest generics company in the US. It derives almost
two-third of its business from India and the US, while the rest comes from other markets/APIs.
The company has 43 manufacturing facilities across the globe and is involved in developing,
manufacturing, and marketing of formulations and APIs across 100 markets. It has over 36,000
employees across the world. It has capabilities across dosage forms such as injectables, sprays,
ointments, creams, liquids, tablets and capsules, and it manufactures generics (pure, complex
and branded) as well as specialty drugs including a biologic. The company has a robust history
of acquisitions in both India and global markets, largest being Ranbaxy Laboratories Ltd in
March 2015.
Exhibit 76: World class, worldwide – Sun Pharma’s manufacturing footprint and capabilities
Finished dosage manufacturing API manufacturing
Total sites 29 14
India (14), US (3), Japan (2)
India (9), Australia (2)
Locations Canada, Hungary, Israel, Bangladesh, South Africa, Malaysia,
Romania, Egypt, Nigeria and Russia (1 each) Israel, USA, and Hungary (1 each)
Orals: Tablets/Capsules, semisolids, liquids Controlled substances manufactured in Australia.

and suppository.
Injectables/Sterile: Vials, ampoules, pre-filled

Capability
syringes, gels, lyophilized units, dry powder, eye
drops and aerosols. Standalone units for peptides, anti-cancer, steroids and
sex hormones
Topicals: Creams and ointments.
Exhibit 77: Management – Board of directors

Name Designation
Mr. Israel Makov Non-Executive, Non-Independent Director, Chairperson
Mr. Dilip S. Shanghvi Executive Director, MD
Mr. Sudhir V Valia Non-Executive, Non-Independent Director
Mr. Sailesh T. Desai Executive Director
Mr. Kalayanasundaram Subramanian Executive Director
Mrs. Rekha Sethi Non-Executive Independent Director
Mr. Vivek Chaand Sehgal Non-Executive Independent Director
Mr. Gautam Bhailal Doshi Non-Executive Independent Director

Source: Sun Pharma
May 10, 2021 33

Exhibit 78: Key milestones – Making of a pharma giant

1983 Foundation year
1985 Launched first cardiology products in India
1991 Established first research centre
1994 IPO
1995 Started API manufacturing facility at Panoli
1997 Acquired Caraco and entered the US market
2010 Acquired Taro Pharma to gain access to US derma products and facilities in Israel and Canada
2012 Acquired DUSA Pharma for a combination therapy product
2014 In-licensed Tildrakizumab from Merck
2014 Acquired Pharmalucence for injectable facility in the US
2015 Acquired InSite Vision for specialty ophthalmic portfolio in US
2015 Merger with Ranbaxy
2016 Acquired global rights for Cequa and Odomzo
2016 Acquired Biosintez to enhance presence in Russian market
2016 Our licensed Tildrakizumab with Almirall in Europe
2016 Acquired 14 brands from Novartis in Japan
2016 Distribution agreement with AstraZeneca in India for Oxra and Oxramet, another agreement in 2015 for Axcer brand
2018 Acquired Pola Pharma in Japan to access dermatology market
2019 Licensing agreement with AstraZeneca UK for ready-to-use infusion oncology products
2019 Licensing agreement with CMS in China for Tildrakizumab, Cequa and eight generic products
2020 In-licensed Triferic brand from Rockwell Medical for nephrology products in India
Source: Sun Pharma
Exhibit 79: Key management

Name Designation Profile
Mr. Israel Makov is the former President & CEO of Teva Pharma. Mr. Makov holds a
B.Sc. in Agriculture and M.Sc. in Economics from Hebrew University, Jerusalem. He
Mr. Israel Makov Chairman
joined Teva in 1995 and led Teva’s global expansion, managing 12 acquisitions. Mr.
Makov joined Sun Pharma in 2012 and is the Chairman of the company.
Mr. Dilip Shanghvi is a first-generation entrepreneur and founder of Sun Pharma. He

Mr. Dilip Shanghvi Managing Director holds a B.Com degree from the University of Calcutta. Mr. Shanghvi has been a
recipient of numerous awards.
Mr Kalyanasundaram Subramanian is a Chemistry graduate and a Chartered

Mr. Kalyanasundaram Accountant from India with 37 years of experience in the pharma industry. He joined
Executive Director
Subramanian Sun Pharma in 2010 after 22 years with GSK. He is the Executive Director of Sun
Pharma Laboratories Ltd.
Mr. Sailesh Desai holds a BSc degree from the University of Calcutta and has more
Mr. Sailesh Desai Executive Director
than 28 years of industrial experience.
Mr Muralidharan joined Sun Pharma in 2017 and is now the Group CFO. He has also
Mr. C. Muralidharan Chief Financial Officer
worked with Teva, Allergan, Mylan, Lupin, Ranbaxy, IOC, etc.
Source: Sun Pharma
May 10, 2021 34

Exhibit 80: Key management remuneration

Name Remuneration (Rs mn) % of PBT
Mr. Dilip Shanghvi 32.6 0.1%

Mr. Sudhir V. Valia (up to May 29, 2019) 60.5 0.1%
Mr. Sailesh T. Desai 14.0 0.0%
Mr. Kalyanasundaram Subramanian
44.0 0.1%
(from July 04, 2019 till March 31, 2020)
Mr. C. Muralidharan 38.9 0.1%
Source: Sun Pharma
Exhibit 81: Auditors
S R B C & CO LLP
Source: Sun Pharma
Exhibit 82: Credit rating

Instrument Rating Action Date
ICRA
Commercial Paper Programme [ICRA]A1+; re-affirmed March 19, 2021
Short-term, Fund-based / Non-fund Based Limits [ICRA]A1+; re-affirmed March 19, 2021
Long-term / Short-term, Proposed Borrowing Programme [ICRA]AAA (Stable) / [ICRA]A1+; reaffirmed March 19, 2021
CRISL
Long Term CRISIL AAA August 04, 2020
Short term Crisil A1+ August 04, 2020
Source: Sun Pharma
May 10, 2021 35

Financials
Profit & Loss Account Cash Flow Statement
Y/E Mar FY20 FY21E FY22E FY23E Y/E Mar FY20 FY21E FY22E FY23E
Net sales 3,23,252 3,32,024 3,68,425 4,01,687 PBT 50,096 72,886 77,635 88,826
Other operating income 5,123 3,098 5,158 5,624 Non-cash adjustments 19,925 21,649 23,230 24,920
Consumption of materials 92,305 87,117 98,999 1,05,901 Changes in working capital 8,986 (9,669) (7,967) (6,401)
Staff Expenses 63,624 68,496 70,234 75,352 Tax Paid (13,459) (7,411) (12,422) (14,212)
Other operating expenses 1,02,549 93,740 1,09,293 1,18,120 Cashflow from operations 65,548 77,455 80,476 93,133
Total Expenditure 2,58,477 2,49,353 2,78,526 2,99,373 Capital expenditure (15,420) (18,528) (23,867) (26,130)
EBITDA 69,898 85,769 95,057 1,07,937 Change in investments (17,019) (5,808) (8,571) (10,455)
Depreciation 20,528 20,299 22,002 23,869 Other investing cashflow 6,551 (3,407) (5,439) (10,292)
Operating profit 49,370 65,471 73,054 84,068 Cashflow from investing (25,888) (27,744) (37,878) (46,878)
Other income 6,360 8,766 5,808 5,808 Issue of equity (2,125) - - -
EBIT 55,730 74,236 78,863 89,876 Issue/repay debt (33,419) (4,928) (9,874) (6,046)
Interest 3,027 1,350 1,228 1,050 Interest Paid (2,719) (1,350) (1,228) (1,050)
Exceptional items -2,606 -28,013 0 0 Inc. / (Dec.) in Loan Funds 2,189 - - -
Profit before tax 50,096 44,873 77,635 88,826 Dividends paid (13,792) (11,941) (21,679) (24,933)
Tax 8,228 7,411 12,422 14,212 Other financing cashflow (7,085) (2,455) (4,457) (5,126)
Share in profit of associate cos -148 -109 -168 -168 Cashflow from financing (56,950) (20,674) (37,239) (37,155)
Minority interest -4,070 -3,236 -3,105 -3,209 Chng. in cash & cash eq (17,291) 29,037 5,359 9,100
Reported net profit 37,649 34,116 61,940 71,237 Opening cash & cash eq 72,757 64,876 65,900 71,259
EO Items 0 0 0 0 Closing cash & cash eq 64,876 65,900 71,259 80,359
Adjusted net profit 40,256 62,130 61,940 71,237 Free cash flow to firm 50,128 30,913 56,609 67,002
Share O/s mn 2,399 2,399 2,399 2,399
EPS Rs 16.8 25.9 25.8 29.7
Balance Sheet Ratios

Y/E Mar FY20 FY21E FY22E FY23E Y/E Mar FY20 FY21E FY22E FY23E
APPLICATION OF FUNDS : PER SHARE
Non Current Assets 3,34,230 3,40,496 3,50,163 3,66,278 EPS Rs 16.8 25.9 25.8 29.7
Fixed Assets 1,05,674 1,03,802 1,05,556 1,07,694 CEPS Rs 25.3 34.4 35.0 39.6
Capital work in progress 6,589 6,589 6,589 6,589 Book Value Rs 188.7 196.9 211.8 229.0
Goodwill 64,815 64,815 64,815 64,815 VALUATION
Intangible assets 63,595 63,696 63,808 63,930 EV / Net Sales 4.9 4.8 4.2 3.8
Non current investments 52,458 56,971 59,773 65,170 EV / EBITDA 22.8 18.5 16.4 14.3
Long term loans & advances 40,043 43,566 48,566 57,023 P / E Ratio 40.5 26.2 26.3 22.9
Other non-current assets 1,057 1,057 1,057 1,057 P / BV Ratio 3.6 3.4 3.2 3.0
Current Assets 3,16,542 3,30,963 3,55,207 3,86,399 GROWTH YOY%
Current investment 48,974 50,268 56,037 61,097 Sales Growth 13.0 2.1 11.5 9.0
Inventories 78,750 87,224 92,116 95,969 EBITDA Growth 10.8 22.7 10.8 13.6
Sundry debtors 94,212 96,405 1,00,304 1,08,244 Net Profit Growth 3.8 54.3 (0.3) 15.0
Cash and bank 64,876 65,900 71,259 80,359 Gross Fixed Asset Growth 4.7 3.2 5.1 6.7
Short loans and advances 10,777 11,059 13,075 16,292 PROFITABILITY
Others current assets 18,953 20,107 22,415 24,439 Gross Profit/ Net sales ( (%) 71.9 74.0 73.5 74.0
Total Assets 6,50,772 6,71,459 7,05,370 7,52,677 EBITDA / Net Sales (%) 21.3 25.6 25.4 26.5
SOURCES OF FUNDS : EBIT / Net sales(%) 15.0 19.5 19.6 20.6
Share Capital 2,399 2,399 2,399 2,399 NPM / Total income (%) 12.3 18.5 16.6 17.5
Reserves 4,50,245 4,69,966 5,05,770 5,46,948 RoE (%) 8.9 13.2 12.2 13.0
Total Shareholders Funds 4,52,645 4,72,365 5,08,169 5,49,347 RoCE (%) 10.5 13.7 13.9 14.9
Minority Interest 38,602 41,948 45,221 48,597 RoIC (%) 11.5 15.6 15.0 16.3
Non-Current Liabilities 2,461 3,825 2,439 2,009 Tax / PBT % 16.4 16.5 16.0 16.0
Long term borrowings 20,289 21,256 18,294 16,480 TURNOVER
Deferred tax liability (Net) (31,172) (31,172) (31,172) (31,172) Net Woking Cycle 147 152 142 139
Other long term liabilities 8,233 8,378 9,340 10,183 Debtors Velocity (Days) 105 105 98 97
Long-term provisions 5,110 5,362 5,977 6,517 Inventory (Days) 88 95 90 86
Current Liabilities 1,57,064 1,53,321 1,49,541 1,52,724 Creditors Velocity (Days) 46 48 46 44
Short term borrowings 55,494 49,598 42,686 38,454 Current Ratio 2.0 2.2 2.4 2.5
Trade payables 40,937 44,071 47,082 49,100 Quick Ratio 1.5 1.6 1.8 1.9
Other current liabilities 20,931 19,437 14,943 16,292 LIQUIDITY
Short term provisions 39,702 40,215 44,830 48,877 Asset turnover ratio 0.5 0.5 0.5 0.5
Total Equity & Liabilities 6,50,772 6,71,459 7,05,370 7,52,677 Net Debt-Equity Ratio (0.1) (0.1) (0.1) (0.2)
Net debt-EBITDA ratio (0.5) (0.5) (0.7) (0.8)
Interest Coverage 18.4 55.0 64.2 85.6
PAYOUT
Payout % 0.4 0.4 0.4 0.4
Per share 5.7 5.0 9.0 10.4
Yield % 0.8 0.7 1.3 1.5

May 10, 2021 36

Recommendation rationale Sector rating
Buy: Potential upside of >+15% (absolute returns) Overweight: The sector is expected to outperform relative
Accumulate: >+5 to +15% to the Sensex.
Hold/Reduce: +5 to -5% Underweight: The sector is expected to underperform
Sell: < -5% relative to the Sensex.
Not Rated (NR): No investment opinion on the stock Neutral: The sector is expected to perform in line with
the Sensex.
Disclosures
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May 10, 2021 37

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Sun Pharma Initiating Coverage Report - AMSEC

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Sun Pharma Industries Limited.

Eyes On The Sky

FY21-23E Earnings CAGR 7%

Sun Pharma Industries Limited CF & Return Profile Improving

Eyes On The Sky

Key Stock Data

US Generics Business: Erosion to continue, but see opportunities after FY23

Outlook and Valuation

Exhibit 1: Key Financials (Rs mn) Exhibit 2: Key Indicators

Sr. No Particulars Page No.

1 Key Assumptions For Sun Pharma 4

2 Management Commentary on COVID-19 Impact 5

4 Market Share Of Key Specialty Products In The US 7

6 Sun Pharma’s Cash Cow – Domestic Business 17

8 EM and ROW Markets 25

11 Performance in the Past Quarters 29

12 10-Year Historical Financial Data 30

May 10, 2021 3

Exhibit 3: Key Assumptions for Sun Pharma

EM + ROW The revenue in both the geographies is assumed to grow at 7% CAGR.

Consolidated Revenue Growth Seen at 7% over FY21-23E

May 10, 2021 4

Exhibit 4: Management Commentary on COVID-19 Impact

4QFY20 1QFY21 2QFY21 3QFY21

Significant impact of COVID-19 on Sun Pharma’s generics Generic prescriptions reached

Source: Sun Pharma, AMSEC Research

4QFY20 1QFY21 2QFY21 3QFY21

May 10, 2021 5

26.7 23.3 19.9 19.3 18.0

561 631 699 858 951 1,079 30 39 40 62 62 71

Source: Company, AMSEC Research

May 10, 2021 6

May 10, 2021

Jul-19 Jul-19 Jul-19 Jul-19

Exhibit 21: Xelpros

Source: Bloomberg, AMSEC Research

Jan-20 Jan-20 Jan-20 Jan-20

Mar-20 Mar-20 Mar-20 Mar-20

Jul-20 Jul-20 Jul-20 Jul-20

Sep-20 Sep-20 Sep-20 Sep-20

Nov-20 Nov-20 Nov-20 Nov-20

Jan-21 Jan-21 Jan-21 Jan-21

Exhibit 22: Yonsa

Exhibit 20: Absorica

Sep-19 Aug-19 Jan-20

Investment Rationale – What Sets Sun Pharma Apart

Exhibit 23: Opportunity in complexity – Global drugs

2015 • Sun Pharma–Ranbaxy merger (access to Absorica)

2019 • Feb-2019 – Returned Elepsia XR to SPARC

2020 • Feb-2020 – Absorica LD launched in the US

May 10, 2021 8

Ilumya – IL-23 in a Crowded Psoriasis Space

The Psoriasis Treatment Landscape

Skin in the Game - How Ilumya Stacks Up

May 10, 2021 9

Source: Sun Pharma, AMSEC Research

Ilumya – A billion dollar opportunity

May 10, 2021 10

Exhibit 30: Ilumetri & IL-23 market share in new

Source: Almirall, AMSEC Research

May 10, 2021 11

Cequa – Addressing a critical public health issue

Exhibit 31: Types of dry eye diseases

Source: AMSEC Research, Review of Optometry