HDFC Securities has reiterated its 'Buy' rating for Sun Pharmaceutical Industries Ltd. and increased its target price to Rs 2,030, up from the previous Rs 2,000. This positive outlook follows Sun Pharma's announcement of an agreement to acquire US-based Organon & Co in an all-cash transaction.
Details of the Organon Acquisition
The deal values Organon at an enterprise valuation of $11.75 billion. Sun Pharma will acquire 100% of Organon's shares at $14 per share, totaling an equity value of approximately $3.99 billion. To finance this significant acquisition, the Indian pharmaceutical giant plans to use $2-2.5 billion from its internal accruals and raise an additional $1.5-2 billion through debt.
The merger is projected to conclude in early 2027, after which Organon will be delisted from the New York Stock Exchange (NYSE).
HDFC Securities' Rationale for the 'Buy' Call
HDFC Securities' optimistic stance is rooted in several strategic benefits the acquisition brings to Sun Pharma. The brokerage believes the buyout will significantly expand Sun Pharma's innovative medicine portfolio, potentially pushing its share to 27% by fiscal year 2026. This includes a crucial entry into the women's health market, which boasts $1.75 billion in sales with established brands like Nexplanon, thereby diversifying Sun Pharma's portfolio beyond its traditional focus areas of dermatology and ophthalmology.
Furthermore, the deal provides access to Organon's $691 million biosimilar business and is expected to strengthen Sun Pharma's presence in the Chinese market with a robust offering of generic and biosimilar products. HDFC Securities also anticipates the combined entity to generate substantial cost synergies, exceeding $350 million, within the next two to four years.
Financial Projections and Market Impact
The brokerage projects that the Organon deal will be significantly accretive, boosting Sun Pharma's sales by 80%, EBITDA by 82%, and profit after tax (PAT) by 27% in FY28. However, it also notes a shift in Sun Pharma's financial position; the drugmaker is expected to transition from a net cash company, holding $3.2 billion as of December 2025, to a net debt company with approximately $8 billion in debt.
Following the announcement of the Organon deal, Sun Pharma shares reacted positively, gaining 7.03% in the previous session on Monday to close at Rs 1733.80 a share on the BSE.