Sun Pharma may rally as Taro not to invest in wind energy

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26 Aug, 2025 12:21

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Shares of Sun Pharmaceutical Industries are likely to see relief rally on Thursday after its subsidiary has decided not to invest in wind energy business in the US.

US subsidiary Taro Pharma in its annual general meeting notice has said it has withdrawn proposal worth USD 225 million to invest in wind energy business.

"Some of the company's subsidiaries were contemplating an investment in a wind energy project in the US. Subsequent to a further evaluation, these subsidiaries have decided not to proceed with this potential project," the company says in its filing to the exchange.

Taro Pharmaceuticals, on November 17, had proposed a USD 275 million investment in the construction of & acquisition of a wind-powered electric energy project jointly with affiliates of company's controlling shareholder, Sun Pharma in US. It was with equity investment of USD 100 million (Sun Pharma and Taro to invest in a ratio of 2:1), with the balance being funded through debt.

Reason behind Sun and Taro's investment in wind energy was to reduce tax liability as renewable energy projects in the US are eligible for tax breaks under Federal Production Tax Credit (PTC) as well as achieve accelerated tax depreciation.

Credit Suisse (in its note on November 19) had said total cost of the project for Sun Pharma was expected to be USD 250 million and tax savings from this deal was expected to be USD 25 million annually. Additionally, the company was expected to receive lifetime tax benefits of USD 175 million.

The stock has corrected more than 6 percent in last four consecutive sessions and fell more than 20 percent in November due to regulatory concerns at Halol, potential non-strategic investment in wind power project and lack of disclosure around the USD 400 million deal with a third party.

Analysts, which were worried due to company's investment in unrelated business and raised questions over capital allocation decision, feels the company's current decision not to proceed with wind power project in the US is a positive development and valuations are attractive.

According to Bank of America Merrill Lynch (which has maintained buy rating on the stock and target price of Rs 1,070), the street is factoring in worst outcome at Halol plant (import alert), which is reflected in current valuations (trading 20 percent below long-term average). It believes risk-reward is favourable and current valuations present a particularly attractive buying opportunity.

Conceptually, the brokerage continues to like Sun Pharma's best-in-class franchise, strong execution track record, evolving specialty business and ability to generate free cash flow.

It feels Gleevec launch is the next key catalyst for stock.

Sun Pharma recently highlighted that as part of its risk-mitigation strategy, it has filed Gleevec (used to treat blood, bone and skin cancer) from an alternative site and is confident of monetizing this opportunity.

Sun has already settled with an innovator for a February 2016 launch (subject to FDA approval) and this is likely to remain a limited-competition opportunity after the 180-day exclusivity, says Bank of America Merrill Lynch, which is expecting USD 400 million revenue in FY17.Posted by Sunil Shankar Matkar