Sun Pharma.Inds. (SUNPHARMA)

FairStock Score: 52/100 — MIXED

Score breakdown: P/E: 0/3 · ROCE: 1/2 · Growth: 2/2 · Dividend: 0/1

Key Financials

Investment Thesis

Sun Pharma is a high-quality pharma stalwart with a fortress balance sheet, healthy ROE/ROCE, strong FCF and high promoter holding. However, the stock is fundamentally expensive: ₹1,930 price is more than 3x the Graham number of ₹576.23, P/E is 38.32, and the quant earnings-momentum signal is fading at -4.51% profit growth. Quant signals are mixed—liquidity and volume imbalance are bullish, but mean-reversion and price-value convergence are bearish—so fresh long entry is unattractive and existing holders should treat strength as a trimming opportunity.

Rating: SELL (MEDIUM confidence) — 6M horizon

Strengths

• Fortress balance sheet: Debt/Equity 0.055, current ratio 2.39, Altman Z-score 11.83
• High promoter holding of 54.48% aligns promoters with shareholders
• Healthy returns: ROCE 20.21%, ROE 14.07%, strong FCF ₹8,889 crore
• Piotroski F-score 8/9 indicates good operating efficiency
• Excellent liquidity and low market impact: composite liquidity score 98.7/100

Concerns

• Extreme valuation: current price ₹1,930 vs Graham number ₹576.23; margin of safety deeply negative
• Expensive multiples: P/E 38.32, EV/EBITDA 53.64, and high implied PEG because earnings momentum is weak
• Quant earnings momentum neutral/negative: -4.51% profit growth and not accelerating
• Dividend yield only 0.83% provides negligible downside protection
• Mean-reversion/volume signals are not strong enough to support fresh buying; volume ratio only 0.538

AI Analysis

Here is what you need to know about Sun Pharma. It is a high-quality pharmaceutical company with a fortress balance sheet—debt is only about 0.06 times equity, current ratio is over 2, and promoter holding is 54.48%. The business generates healthy returns: ROCE around 20%, ROE around 14%, strong free cash flow and a Piotroski score of 8 out of 9. So as a company, this is what I would call a stalwart. The problem is the price. The stock trades around 1,930, with a P/E of about 38. The Graham number, a conservative value measure, is only about 576. That means you are paying more than three times that conservative intrinsic-value yardstick. Even using a DCF, existing analysis suggested fair value closer to 1,278. So the margin of safety is negative; you are relying on future growth to grow into this valuation. The quantitative signals add important color. The mean-reversion model computed in May showed a z-score of 1.68 and the stock about 4.6% above its 20-day average, which is why it flagged strong sell; in plain terms, the stock had stretched too far above its short-term trend and had a half-life of about six days, meaning it tends to drift back. Since then, recent price action has actually cooled off—five-day change is down about 4.3%—so some of that overbought condition has been worked off. Still, the valuation gap remains. Volume signals are mixed: the five-day buying imbalance is bullish at 66.5%, and liquidity is excellent, so institutional investors can trade it easily. But the volume anomaly ratio is 0.54, meaning turnover is only about half its average, so conviction is low. Earnings momentum is also neutral: the quant signal showed profit growth around -4.5%, even though headline reported profit growth is 47.99%. That tells me the market may be paying a premium for a business whose near-term earnings momentum is not accelerating. For position sizing, the Kelly math says there is no fresh long edge here right now; half-Kelly would also be zero for a new buy. If you already own it, I would consider trimming rather than adding. My rating is a sell for new long positions, with medium confidence, over a six-to-twelve-month horizon. The company is not broken—it is just a wonderful business at an unwelcome price.

Data from BSE/NSE filings. AI analysis is for educational purposes only — not investment advice. Scoring methodology · Disclaimer