Brokerage houses have maintained a buy call on Sun Pharmaceutical Industries after the US Food & Drug Administration said it would lift the import alert imposed on Mohali (Punjab) manufacturing facility.
It will also remove the facility from official action initiated (OAI) status.
"This proposed action will clear the path for Sun Pharma to supply approved products from the Mohali facility to the US market, subject to normal US FDA regulatory requirements, the pharma major said in its filing.
Mohali, which had been under import alert since September 2013, is an oral solids plant and capacity-wise is understood to be as big as Ranbaxy's Ohm Labs facility in the US.
CLSA says Mohali plant clearance is a significant positive development for the company and shows progress on regulatory issues. Clearance makes a large oral solid dosage site available to de-risk existing sites.
Sun can do certain site transfers to the Mohali plant and can start filing products with potential launch in FY19-20, it adds.
CLSA says resolution of Halol facility, which is currently undergoing remediation, would be the next major regulatory trigger. "We currently build in resolution of the Halol plant by Q3FY18. Early resolution of the Halol plant has earnings upgrade potential for company."
The other facilities that have consent decree from the US FDA are Toansa, Dewas and Paonta Sahib facilities, all of which were part of Ranbaxy, says CLSA, which has a buy call on Sun Pharma, with a target price at Rs 790.
Macquarie says with the lifting of the import alert from Mohali, it expects approvals (around 30 ANDAs were pending approval in 2013 before import alert) to start coming through from this facility.
The brokerage house has retained Sun Pharma as its preferred pick among the large-cap names as it continues to believe Sun is best positioned for specialty transition. It has maintained outperform rating on the stock with a target price of Rs 850.
While maintaining buy rating on the stock with a target price at Rs 750, Bank of America Merrill Lynch also says Mohali import alert resolution is in line with its earlier expectations and is expected to be sentimentally positive for valuations.
"It demonstrates management ability to resolve critical regulatory concerns; Mohali is likely to be used as a transfer site for critical oral filings from Halol as well as new filings; the synergy benefits from the Ranbaxy merger are likely to be higher; and there could be cost optimisation as some products are believed to have been transferred out of Mohali to Ohm Labs facility in US due to the import alert," the brokerage house explains why Mohali clearance is sentimentally positive for Sun's valuations.
Deutsche Bank has reiterated its buy rating on Sun Pharma with a target price of Rs 872, saying delay in resolving warning letter at Halol plant; slower-than-expected growth in the Indian formulations market; and faster-than-expected decline in Taro's sales are downside risks for the stock.
Morgan Stanley says the lifting of the ban serves two purposes - one is that it generates goodwill with Sun's customers and regulators and second is it adds a new sizable site to Sun's supply chain over mid to long term.
The brokerage house does not expect material EPS impact from Mohali over next few quarters.
Morgan continued to remain equal-weight on Sun in view of near-term growth challenges due to Taro and gGleevec concentration. The specialty portfolio may take a while to ramp up in the US, it says, adding valuations appear full now.
The Mohali facility was inherited by Sun Pharma as part of its acquisition of Ranbaxy Laboratories in 2015. The US FDA had taken action against the Mohali facility in 2013 when it ordered the facility to be fully subject to Ranbaxy's Consent Decree of Permanent Injunction. Certain conditions of the consent decree will continue to be applicable to the Mohali facility.
At 12:03 hours IST, the stock was quoting at Rs 711.10, up Rs 2.85, or 0.40 percent on the BSE.
Posted by Sunil Shankar Matkar
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
