In an interview to CNBC-TV18, Bino Pathiparampil, vice president, IIFL Capital analyses the pharma sector wherein he reviews specific stocks like Sun Pharma and Cadila.
A provision was introduced in the Budget, by which the government has made the minimum alternate tax (MAT) applicable on known corporates as well. This means a 20% straight payout of tax on certain parts of profit that are coming from the partnership structures based in tax exempt zones.
Pathiparampil says the companies directly impacted are Sun Pharma, Cadila and to a smaller extent Torrent Pharma. Below is an edited transcript. Watch the accompanying video for more. Q: What is your list of stocks that you have turned more cautious on? What do you see as a likely impact because of the taxation changes announced in the Budget?
A: We have seen a very critical provision being introduced in the Budget by which the government has made the minimum alternate tax (MAT) applicable on known corporates as well. So there were a few pharma companies that were using the partnership structures for better tax planning out of tax exempt zones because of MAT not being applicable to the partnerships, they were not paying any tax from those facilities.
Now they have been brought under MAT and this means 20% straight payout of tax on certain parts of profit that are coming from the partnership structures based in tax exempt zones. The companies directly getting impacted are Sun Pharma, Cadila and to a smaller extent Torrent Pharma. My estimate is that both Sun and Cadila could see a 12-13% hit on FY13 EPS just because of this new tax provision assuming everything else remaining the same. Torrent Pharma could see a 4-5% impact. Q: Do you think the corrections on Budget day adequately priced in these changes? Would you buy Sun Pharma again at Rs 550 post the correction or do you think this might have a lingering impact on the stock prices for Sun Pharma and Cadila?
A: As far as Sun Pharma is concerned, it saw a recent 12% potential hit on FY13 earnings. We also have to keep in mind that there are some upsides that are coming in FY13 which I believe were not priced into the stock. Recently they got the Lipodox approval in the US which is practically an exclusive. Apart from the innovator, Sun is the only player in the market.
Even the innovator is having supply issues. So that product could add more than USD 100 million to Sun
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