Sun Pharma's margin drops 4.82 points as quarterly revenue falls
Year-on-year profit growth was aided by a lower tax rate and other income, while the stock's post-results fall exceeded its usual move.
Filed 22 May 2026, 14:43 IST · Sun Pharmaceutical Industries Ltd (SUNPHARMA)
Key takeaways
- Consolidated operating margin fell 4.82 percentage points QoQ to 27.06% as revenue declined 5.86% while expenses rose 0.81%.
- Net profit rose 25.80% YoY, helped by a 10.28-percentage-point fall in the tax rate and other income equal to 12.56% of pre-tax profit.
- The stock fell 2.47% on results day and 5.01% by day five, a sharper reaction than its 1.64% median absolute move after recent results.
Price around the results
Q4 margin reversal follows three quarters of expansion
Consolidated revenue fell 5.86% QoQ, while expenses increased 0.81%, pulling operating profit down 20.09% and operating margin down 4.82 percentage points. This reversed the margin improvement seen in each of the preceding three quarters, when operating margin moved from 31.06% in Q1FY26 to 31.88% in Q3FY26. Year-on-year, revenue grew 12.76%, but expenses grew faster at 15.31%, leaving operating margin 1.62 percentage points lower.
Tax relief and other income lifted reported profit
Net profit increased 25.80% YoY despite operating profit growth of only 6.41%, as the tax rate fell 10.28 percentage points to 23.40%. Other income was 12.56% of pre-tax profit, so the reported earnings growth was not entirely operational. Interest expense also rose 74.79% YoY and depreciation increased 16.82%, adding pressure below operating profit.
Margin remains above the healthcare peer median
Sun Pharma's 27.06% operating margin was 3.68 percentage points above the 23.38% median for the 48 healthcare peers that had reported the quarter. The comparison is favourable, but the sequential deterioration was much sharper than the year-on-year decline and puts the recent margin recovery under scrutiny.
Organon deal adds a financing and execution focus
Management said the proposed acquisition of Organon would expand Sun's European presence and add China and Korea, while the company's biosimilars platform provides a base for in-licensing and future launches. Management said the transaction is expected to close in early 2027, subject to shareholder and regulatory approvals, and that it requires $9.25–9.75 billion of committed bank financing. The presentation also said the combined business is expected to generate cash flows that enable debt repayment.
The market reaction was worse than Sun's recent pattern
The stock fell 2.47% on the results date and was down 5.01% after five sessions, while its relative performance was down 3.86% over the same five-session window. Six of the last eight post-results reactions were negative, but the latest five-day decline exceeded the recent median absolute move of 1.64%; the reaction also overlapped with a corporate action.
Q4FY26 at a glance
Consolidated figures as filed with NSE — cross-checked against an independent source.
| Line item | Q4FY26 | Q3FY26 | QoQ | YoY |
|---|---|---|---|---|
| Revenue | ₹14,612 cr | ₹15,521 cr | -5.86% | +12.76% |
| Other income | ₹444 cr | ₹69 cr | +540.03% | +81.79% |
| Expenses | ₹10,658 cr | ₹10,572 cr | +0.81% | +15.31% |
| Operating profit | ₹3,954 cr | ₹4,948 cr | -20.09% | +6.41% |
| Operating margin (%) | 27.06% | 31.88% | — | — |
| Interest | ₹86 cr | ₹78 cr | +9.61% | +74.79% |
| Depreciation | ₹775 cr | ₹732 cr | +5.89% | +16.82% |
| Profit before tax | ₹3,537 cr | ₹4,207 cr | -15.92% | +8.92% |
| Tax | ₹828 cr | ₹826 cr | +0.19% | -24.33% |
| Net profit | ₹2,710 cr | ₹3,381 cr | -19.86% | +25.80% |
| EPS (₹) | ₹11.30 | ₹14.00 | -19.29% | +25.56% |
Operating margin of 27.06% compares with a Healthcare sector median of 23.38% across 48 peers that have reported Q4FY26.
How the stock reacted
| Window | Stock | vs NIFTY |
|---|---|---|
| Results day | -2.47% | -2.74% |
| Next session | -2.68% | — |
| 5 sessions | -5.01% | -3.86% |
| 15 sessions | -4.51% | — |
| 30 sessions | +0.64% | — |
Volume on the results session was 0.67× its 20-day average.
What management said
From the company’s own investor presentation. Each point is checked against the source document before it appears here.
Guidance & outlook
- The global biosimilars market is projected to grow at more than 15%.
- The transaction is expected to close in early 2027, subject to customary closing conditions.
- The combined business is expected to generate strong cash flows that enable debt repayment.
Expansion
- Sun plans to acquire Organon for $14.0 per share in cash at closing.
- The combination expands Sun’s European presence and adds China and Korea.
New products
- The biosimilar platform supports in-licensing and future launches.
New initiatives
- The companies plan to assess combined organizational capabilities and expertise.
- The companies plan cross-cultural assimilation and ways of working after closing.
Competition
- Organon is described as the seventh-largest player in the global biosimilar segment.
- Sun is ranked number one in four countries and number three in women’s health.
Problems & risks
- The transaction requires approval from Organon shareholders and customary regulatory approvals.
- The acquisition will require $9.25–9.75 billion of committed bank financing.
What to watch
- Whether consolidated operating margin rebuilds from 27.06% after the four-quarter reversal.
- Whether other income remains near 12.56% of pre-tax profit and continues to support reported earnings.
- Progress on Organon's approvals and the $9.25–9.75 billion committed financing requirement.