Detailed Rationale

Crisil Ratings has placed its rating on the long-term bank facilities of Sun Pharmaceutical Industries Ltd (Sun Pharma) on 'Rating Watch with Developing Implications' and has reaffirmed its ‘Crisil A1+’ rating on the short-term bank facilities and commercial paper.

 

The rating action follows Sun Pharma’s announcement on April 27, 2026, that it has signed a definitive agreement to acquire US based Organon & Co. (Organon, ‘BB/Negative/A4’ by S&P Global Ratings) for an enterprise value of $11.75 billion. The transaction, expected to be completed in early 2027, is subject to necessary approvals from shareholders of Organon and regulators and other authorities in different countries.

 

Organon is a global healthcare company formed through a spinoff from Merck. The company has six manufacturing facilities across the European Union and emerging markets. In calendar year 2025, it reported revenue of US$ 6.2 billion with adjusted operating profits of ~$2 billion and operating margin of ~31%. Established brands contributed 55% to Organon’s revenue in 2025, while innovative medicines in women’s health contributed 33%, and biosimilars 11%. The transaction, when consummated will significantly bolster Sun Pharma’s global footprint, positioning it among the top 25 global pharmaceutical companies with pro-forma revenue of ~$12.4 billion. Strategically, the acquisition provides Sun Pharma with immediate leadership in Women’s Health and Biosimilars and expanded geographical outreach, while also strengthening its innovative medicine portfolio. On a combined front, innovative medicines will account for ~27% of consolidated revenue, established brands and branded generics 51%, biosimilars 6%, generics 15%, APIs and others 2% on a pro-forma basis. The operating profitability or earnings before interest, taxes, depreciation and amortisation (Ebitda) margin is expected to continue at healthy levels of 29-30%, translating to absolute operating profit of ~$4 billion, and healthy annual cash generation.

 

While Sun Pharma is expected to use $2-2.5 billion of cash surpluses and internal accrual to fund the transaction, it will assume substantial debt addition of $9.5–10 billion, which will temporarily lead to high leverage metrics; net debt/Ebitda is expected around 1.5 to 2 times in fiscal 2028 (first full year post-acquisition). That said, the company is expected to significantly reduce its debt thereafter, in keeping with the management philosophy of operating with a debt light balance sheet.

 

Crisil Ratings notes the acquisition is of an entity with substantial scale with inherent complexities of operational and cultural integration, alongside the managerial challenges of absorbing Organon’s global footprint. Beyond the financial consolidation and possible contingent liabilities, if material, Crisil Ratings will seek to evaluate the underlying business profile of Organon and the management’s strategic plans to ensure sustained growth and healthy profitability within a highly competitive landscape. Crisil Ratings will remove the rating from watch and announce its final rating action post a comprehensive assessment of the impact of these issues on the credit profile of Sun Pharma.

 

Earlier, Sun Pharma’s consolidated revenue grew 11% on-year in the nine months of fiscal 2026 and 9% on-year in fiscal 2025, driven by healthy growth in the domestic and emerging and rest-of-the-world markets. This was supported by ramp-up in the sale of innovative medicine products, led by new launches and high volume, even as growth in the US formulation markets was subdued amid continued pricing pressure in the generic segment. The operating margin was healthy at 31.4% in the nine months of fiscal 2026 and 29.3% in fiscal 2025, supported by healthy revenue growth and increasing contribution of Innovative Medicines products to the revenue mix (21% in nine months of fiscal 2026).

 

The ratings continue to reflect the leadership position of Sun Pharma in the domestic formulation segment, the ramp-up in its global innovative medicine business, its strong presence in the regulated generic markets, expanding share in the emerging and rest-of-the-world markets (excluding India and the US) and robust financial risk profile. These strengths are partially offset by exposure to intense pricing pressure and regulatory risk in the domestic and regulated markets.

 

Crisil Ratings expects the revenue to register high single-digit growth annually over the medium term, led by ramp-up in sales of key innovative medicine products, including the recently launched Leqselvi and UNLOXYCT. The operating margin should sustain at 26-27% over the medium term after factoring in the research and development (R&D) expenses (forming 6-8% of revenue), lag in accrual of commensurate returns on innovative medicine products vis-à-vis marketing expenses and exposure to foreign currency risk. Moreover, the impact of the policy changes in US formulation market around the Most Favored Nation (MFN) regulations and tariff for innovative medicines on Sun Pharma’s operating margin will be monitorable.

 

The financial risk profile remained strong as indicated by robust adjusted networth of over Rs 64,000 crore (estimated as on March 31, 2026), moderate debt and sizeable cash surplus of over Rs 25,000 crore as on December 31, 2025. Debt (including lease liabilities) increased from Rs 2,362 crore as on March 31, 2025, to around Rs 5,200 crore as on September 30, 2025, driven by the acquisition of Checkpoint Therapeutics Inc (Checkpoint), which was completed in May 2025. Earlier in May 2025, Sun Pharma completed its acquisition of Checkpoint for approximately $355 million. Checkpoint is a commercial-stage immunotherapy and targeted oncology company focused on novel treatments for patients with solid tumour cancer. The acquisition was followed by the launch of the acquired drug UNLOXYCT in the US markets in January 2026.

 

On July 24, 2025, Sun Pharma's subsidiaries, Sun Pharmaceutical Industries, Inc. and Taro Pharmaceuticals U.S.A., Inc., entered into a settlement agreement with putative End Purchaser Plaintiffs, agreeing to pay $200 million (Rs 1,711.2 crore) to resolve claims against them without admitting guilt or liability with the possibility of a reduction if a certain percentage of class members opted out. The settlement, which received court approval in January 2026, resulted in a full release of all claims against the companies and their affiliates, and the court dismissed the EPP matters with prejudice.

 

Sun Pharma is expected to undertake moderate annual organic capital expenditure (capex) of Rs 2,000-2,500 crore for routine maintenance along with the company’s announced greenfield capex of Rs 3,000 crore to be incurred over the next four years for setting up a manufacturing facility in Madhya Pradesh. The working capital will be funded through cash accrual and liquid surplus. As per Crisil Ratings estimates, with the acquisition of Organon, organic capex spending may increase by Rs 1400-1500 crore annually, which too will be met largely from the accrual of the combined entity.

Analytical Approach

Crisil Ratings has combined the business and financial risk profiles of Sun Pharma and its various subsidiaries, joint ventures (JVs) and associates, collectively known as Sun Pharma, as these entities have considerable operational and financial linkages. For JVs and associates, a moderate integration approach is followed—Crisil Ratings factors in the share of profit from JVs, as also any incremental investment required by them. Intangibles (such as brands and trademarks) and goodwill on consolidation have also been amortised over five years.

 

Please refer to Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.

Key Rating Drivers - Strengths

Leadership position in domestic formulation

Sun Pharma is the leader in the domestic formulation segment (contributed 33% to revenue in the nine months of fiscal 2026) with a market share of ~8.4% as on December 31, 2025 (source: All India Organisation of Chemists and Druggists MAT Data for December 2025). Its leading position in the chronic segment is backed by specialisation in technically complex products, strong brand equity and large product portfolio. Sun Pharma has 31 brands among the top 300 brands in the domestic market. It also ranks among the top 10 consumer healthcare companies in India and enjoys strong brand equity for key products such as Revital (vitamin and mineral supplement) and Volini (pain reliever). These brands give it a competitive edge and have helped lay the foundation for the global over-the-counter (OTC) business. Sun Pharma sells OTC products in over 20 international markets. Its key therapeutic areas in domestic formulations are neuropsychiatry, cardiology, gastroenterology, pain-analgesics and anti-infectives. The company continues to enjoy a dominant position in these segments.

 

Strong presence in the US and other regulated markets with robust innovative medicine product portfolio

The US, which contributed around 29% to revenue in the first nine months of fiscal 2026, is among the key geographies for Sun Pharma. The company ranks 13th among the generic pharmaceutical companies in the US. It has a robust product pipeline and had filed 666 abbreviated new drug applications (ANDAs) and 71 new drug applications (NDAs) of which 116 ANDAs and 14 NDAs were pending approval from the US Food and Drug Administration (FDA) as on December 31, 2025. With extensive R&D over the past several years, Sun Pharma has established a robust portfolio of innovative medicine products in the US and other regulated markets. The company launched its complex generic product, Lenalidomide (gRevlimid), in the US in fiscal 2023, which has supported growth even amid pricing pressure in the US generic segment. Successful launch of Deuruxolitinib (Leqselvi) in July 2025 and UNLOXYCT (through Sun Pharma’s acquisition of Checkpoint) in January 2026 is expected to further strengthen innovative medicine product offerings over the medium term. Healthy market position in the other regulated markets of Europe, Japan, Canada and Australia is supported by the company’s strength in the innovative medicine, generic and OTC segments.

 

Strong financial risk profile

Driven by a healthy adjusted networth and moderate debt, the adjusted gearing was low at 0.05 time as on September 30, 2025. Large cash accrual will suffice to cover moderate organic capex (including the greenfield capex) and incremental working capital requirement. Debt protection metrics were healthy with adjusted interest coverage ratio above 50 times for the first nine months of fiscal 2026.

 

While gross debt previously increased to ~Rs 5,200 crore as on September 30, 2025, following the Checkpoint Therapeutics acquisition, the financial risk profile will undergo a transition due Organon transaction. The acquisition is expected to be largely debt-funded, involving $9.5–10 billion in committed bank financing (including the expected takeover of Organon’s existing debt of ~$8.5 billion). Crisil Ratings expects the leverage to increase with net debt/Ebitda of around 1.5 to 2 times in fiscal 2028 (the first full year post-acquisition) with however, the financial risk profile expected to remain healthy, supported by a significant scale-up in business, strong operating profitability of 29-30%, and combined annual Ebitda of $3.8-4.0 billion. The company is expected to de-lever by prepaying debt over the medium term in line with its conservative leverage philosophy. While large cash flow and sizeable liquid surplus will ensure strong financial flexibility, any further substantial, debt-funded capex will be monitorable.

Key Rating Drivers - Weaknesses

Exposure to regulatory risk

Sun Pharma faces regulatory risk with instances of adverse observations for its plants. In December 2022, the US FDA issued an import alert for the company’s facility in Halol, Gujarat. Following this, the company also received a warning letter about its facilities at Dadra and Mohali and the facility at Baska was classified as ‘Official Action Initiated’ (OAI) by US FDA. This will impact sales of the facilities until the non-compliances are resolved. Four of its facilities (at Taonsa, Karkhadi, Paonta Sahib and Dewas) continue to be subject to certain provisions of the consent decree of permanent injunction. Resolution of pending regulatory issues and sustained compliance remain monitorable. Crisil Ratings notes that Sun Pharma has provided for sizeable settlement amounts historically and continues to make proportionate provisions factoring the on-going litigations and tax liabilities under dispute, the impact of which may not be ascertainable at present. Higher than expected movement in such provisions, settlements or any adverse regulatory outcomes materially impacting cash surplus would be monitorable.

 

Susceptibility to intense competition and US policy uncertainties

Sun Pharma faces intense competition in the US generics market with the introduction of authorised generics, customer consolidation, faster pace of ANDA approvals by the US FDA, and healthcare cost-containment measures by the US government. Also, players in the US and Europe remain vulnerable to pricing pressure on account of entry of several cost-competitive Indian players. Increasing competition in international markets and R&D cost could constrain the operating margin.

 

Further, amid regulatory volatility, the impact of the policy changes in US formulation market around the MFN regulations and tariff uncertainties for Innovative Medicines on Sun Pharma’s operating margin will be monitorable.

Liquidity Superior

Crisil Ratings expects Sun Pharma’s annual cash accrual (excluding Organon) of Rs 9,000-10,000 crore to be sufficient to cover near-term debt obligation and incremental working capital requirement. Organic capex is expected to remain moderate at Rs 2,000-2,500 crore annually along with the announced greenfield capex of Rs 3,000 crore to be incurred over the next four years. Such Capex is likely to be funded through cash accrual and liquid surplus. Liquid surplus was strong at over Rs 25,000 crore as on December 31, 2025.

 

Post Organon acquisition, Crisil Ratings expects annual cash accrual to increase to Rs 22,000–25,000 crore, providing ample cushion to cover annual debt obligation, incremental working capital, and organic capex. Consolidated capex, including the Madhya Pradesh greenfield project and routine maintenance, will be largely funded through internal accruals. Financial flexibility is further enhanced by access to unutilised bank limit. As per current repayment schedule, Organon has $3.5 billion of debt obligation maturing in calendar year 2028, which may require part refinancing, should a substantial portion not be prepaid earlier.

 

Any significant payout towards legal or regulatory claim settlements or further large acquisition will remain monitorable.

ESG Profile

• Sun Pharma targets 35% reduction in absolute carbon emissions by fiscal 2030 (scope 1 and 2) and 10% water consumption reduction by fiscal 2025 compared with its fiscal 2020 base year. In alignment to this goal, it has reduced absolute scope 1 and 2 emission by ~25% and water consumption by ~32% in fiscal 2025 compared with the base year
• In fiscal 2025, share of renewable energy in its overall energy mix increased to ~50% compared with ~45% in the previous fiscal
• It has also set a target of disposing 30% of hazardous waste via co-processing by fiscal 2025 and exceed this target by disposing 47% of hazardous waste through this route in fiscal 2025
• Sun Pharma is one of the few pharmaceutical players in India to conduct a Taskforce on Climate-related Financial Disclosures (TCFD) based scenario analysis for identification of physical risks and transition risks and a Taskforce on Nature-related Financial Disclosures Framework (TNFD) based biodiversity risk identification (TNFD covered 5 of its 35 plants)
• Additionally, it reported zero workforce fatalities and has relatively high share of employees trained on skill upgradation and safety measures. Sun Pharma’s gender diversity improved marginally from 12% in fiscal 2024 to 13% in fiscal 2025 though it remains lower than the peer average
• Sun Pharma’s governance structure is characterised by ~50% of its board comprising independent directors, ~25% woman directors, presence of lead independent director, high attendance of independent directors at board and committee meetings (~96%), dedicated investor grievance redressal system and extensive financial and ESG related disclosures
• There is growing importance of ESG among investors and lenders. The company’s commitment to ESG principles will play a key role in enhancing stakeholder confidence and ensure ease of raising capital from markets where ESG compliance is a key factor.

Rating sensitivity factors

Downward factors:

• Sizeable revenue decline, or operating profitability dropping below 15-17% on sustained basis
• Stretch in working capital cycle or large, debt-funded capex or acquisitions deteriorating debt metrics; net debt/ EBITDA sustaining above 1.75-2 times beyond two years in the event proposed Organon acquisition materialises
• Longer-than-expected integration of Organon, leading to post-acquisition operating performance deterioration
• Any adverse regulatory outcome resulting in significant payouts/ settlement with sustained impact on liquidity and debt metrics 

About the Company

Sun Pharma was formed as a partnership in 1982 in Vapi, Gujarat, to manufacture drugs. It was reconstituted as a limited company in 1993. Dilip Shanghvi is the promoter. Sun Pharma is one of the largest Indian pharmaceutical companies with a leading position in the high-growth chronic segments. Its product mix comprises formulations and bulk drugs with the former accounting for nearly 95% of revenue. Product acquisitions by the company have helped establish its global Innovative Medicines business. Acquisitions in the generics business helped broaden the global product basket and enhance presence in key geographies.

 

In the first nine months of fiscal 2026, the company reported revenue of Rs 43,850 crore (Rs 39,620 crore in the corresponding period of fiscal 2025) and net profit of Rs 8,799 crore (Rs 8,811 crore).

Key Financial Indicators (consolidated numbers)

Particulars	Unit	2025	2024
Revenue	Rs crore	52,664	48,560
Adjusted profit after tax (APAT)*	Rs crore	11,032	9,457
APAT margin	%	20.9	19.5
Adjusted debt/adjusted networth*	Times	0.04	0.05
Interest coverage	Times	74.11	60.99

*Adjusted for intangibles and goodwill amortisation

Any other information: Not Applicable