Sun Pharmaceutical Industries ltd announcing Organon acquisition has addressed a key investor concern. The acquisition marked a clear departure from Sun Pharma's recent acquisition template – multiple sub-$500 million assets over the years against adding a company of its own scale as part of a single acquisition.  

That the company wanted to make a near-complete transition to being a specialty-focused player has been clear over the last five years, though the pace and scale of it was what the Street was wary of over the last few months, Emkay Global noted. 

"Most investor concerns around growth in the acquired company, leverage, and EPS accretion were addressed during the Sun Pharma's conference call. The only question around is the fair multiple for Sun Pharma going forward that could be raised, in our view," Emkay said while suggesting 'Buy' and a target of Rs 2,100 on the stock.

Growth revival holds the key

Analysts said the fresh acquisition has provided scale, but growth revival would hold the key. JM Financial titled its report on Sun Pharma as "A larger sun, now in a slower orbit: The Organon deal."

It argued Sun Pharma could have alternatively allocated similar capital towards higher-quality novel assets that may have delivered superior growth and return on capital. It said the deal appears less compelling from a long-term value creation standpoint despite near-term earnings accretion.

HDFC Institutional Equities said it sees growth trend for combined entity falling to mid-single digit from 10-12 per cent for Sun Pharma alone – this is a major near-term overhang, it said.

It said the integration of two large businesses, given Organon comes with over 10,000 employees and operations in 140 countries), along with growth challenges in Organon’s established brands/generic portfolio, will be near-term challenges. 

And so would be a scale-up in competitive biosimilar business, growth revival in Woman Health portfolio, and servicing of $8.5 billion debt. This brokerage suggested a 'Buy' and a target price of Rs 2,030 on the stock. 

Organon deal, scale 
Sun Pharma has entered into a definitive agreement to acquire Organon & Co at
$14.00 per share, implying equity value of $3.99 bn and EV of $11.75 billion. The deal nearly doubles Sun's revenue to $12.4 billion, lifts its innovative medicines
share from 20 per cent to 27 per cent, adds Women's Health and biosimilars as new verticals, and expands commercial reach to 150+ markets. 

At 6.2 times Ebitda, the acquisition multiple is below most precedent pharma M&As such as 7 times for Viatris and 10 times for Teva-Actavis. 

$350 million in synergies

Nirmal bang Institutional Equities suggested a target of Rs 2,320 on the stock, suggesting 34 per cent potential upside. Organon consolidation upside is not yet baked into Nirmal Bang's target price. A successful closing and integration would provide further upside, it said.

The deal unlocks over $350 million in synergies over two–four years and paves the way for Sun’s entry into a scaled biosimilars platform growing at 13 per cent growth compounded annually, Nuvama said.

"Proforma numbers show over 40 per cent EPS accretion to SUNP’s current FY28 estimate. Retain ‘BUY’ with a revised target of Rs 2,000 (earlier Rs 1,875). The stock trades at 29 times/25 times FY27E/28E EPS," it said.