November 25, 2016 / 12:37 IST
SUNP’s Mohali plant has received seven observations post-inspection by the USFDA during 7-16 November. Most of the observations are benign, in our view, and pertain to inadequate investigations, documentation, processes and training. While Mohali resolution is likely to be financially insignificant - at best bringing in some operating leverage benefits - we believe it will significantly boost investor confidence on SUNP’s ability to fulfill compliance norms at Ranbaxy plants. Retain BUY.
We recently upgraded SUNP to BUY given a favourable risk-reward profile (stock trading at 20x FY18E EPS – the lower end of historical valuations), potential triggers from Halol and Mohali plant resolution and the culmination of Ranbaxy synergies (already visible in Q2FY17). Our Sep’17 TP of Rs 875 holds 25% upside.
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