Buy Sun Pharma; target of Rs 920:Edelweiss

Edelweiss's reserach report on Sun Pharma As we anticipated (refer Warning letter to Halol: A known risk plays out; dated December 21, 2015), the FDA Warning Letter (WL) issued to Sun Pharmaceuticals’ (SUNP) Halol unit materially allays investor concerns about further escalation or long delays in remediation. The WL is on the same lines as described by management and it appears that FDA has only reviewed SUNP’s very first response (Oct ‘14) in detail. FDA has highlighted only 6 concerns (versus 23 in Form 483) related to sterility assurance, system controls and minor environmental issues. While FDA has asked for progress reports on some of the issues, it has stated that it would evaluate some of the remediation actions in its follow-up inspection. SUNP remains our top conviction call with a long-term time frame.We believe SUNP is conducting an intensive remediation exercise and this WL does not represent FDA’s final assessment of the remediation efforts, rather an administrative dialogue on the unit’s original issues highlighted in September 2014. We maintain ‘BUY/Sector Outperformer’ with TP of INR920 (22x FY18E EPS). SUNP is our top conviction call with a long-term time frame (refer Pharmaceuticals - Time to Evolve; dated November 26, 2015).

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