Sun Pharma Shares Surge Over 5% Following Organon Acquisition, With Macquarie Predicting Debt-Free Status in 3-4 Years

Sun Pharma Acquires Organon & Co. in Biggest Takeover by an Indian Pharmaceutical Company

Shares of Sun Pharma rose more than 5% in early trade on Monday after the company announced the acquisition of Organon & Co., a significant move in the pharmaceutical industry. The stock was trading at Rs 1,705 on the NSE, up 5.22% in morning deals.

The acquisition presents a strong growth opportunity for Sun Pharma, significantly expanding its global scale, product portfolio, and market reach. The company will take on a sizeable amount of debt to complete the transaction, with leverage expected at around 2.3 times combined EBITDA. Reducing debt quickly will be a key priority after the deal closes.

Sun Pharma currently has around $3.1 billion in cash on its books. The company also stated that it will review cash flows before giving any update on future dividend payouts. Organon brings a commercial footprint spanning more than 150 markets, with presence in 18 countries generating over $100 million in revenue each. Key brands include Nexplanon and NuvaRing, with Organon maintaining EBITDA margins of around 30% over the past five years and generating nearly $1 billion in pre-financing free cash flow.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The acquisition will mark Sun Pharma's entry into biosimilars and strengthen its position in several international markets, including Europe, China, South Korea, Mexico, and Thailand. Organon's China business alone contributes around $800 million in revenue with eight major brands, helping deepen Sun Pharma's limited presence in the country.

Post acquisition, the combined entity is expected to have revenue of around $12.4 billion, with a revenue mix of 27% innovative medicines, 51% established brands and branded generics, 15% generics, and 6% biosimilars. Geographically, the combined business would derive 27% revenue from the US, 29% from emerging markets, 17% from India, and 28% from the rest of the world and other markets.

Sun Pharma said integration would be among its key priorities and plans to set up a dedicated integration office. The company will draw on its earlier experience of integrating Taro and Ranbaxy. The deal is expected to position Sun Pharma among the top 25 global pharmaceutical companies, with ambitions to become number one in four countries, number three in women's health, and number seven in biosimilars.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Reacting to the transaction, Kunal Dhamesha, Pharma & Healthcare Research Analyst at Macquarie Capital, stated that Organon is a strategic fit for Sun Pharma, especially after the target's valuation correction. He noted that the combined operating cash flows of both companies should be sufficient to service debt comfortably. Additionally, Dhamesha predicted that Sun Pharma could return to a net debt-free position within the next three to four years, while the share of innovative business revenue may rise to 27% of the merged entity.