Moneycontrol BureauShares of Sun Pharma slumped over 7 percent intraday on Monday as investors grow cautious about a warning letter for its Halol manufacturing unit. The drug major has received a warning letter from the USFDA over violation of manufacturing norms in its facility at Halol in Gujarat. The warning letter follows inspection of the facility in September 2014 by US Food and Drug Administration (USFDA) inspectors.However, most analysts are still bullish on the stock and are keenly waiting to for more details in the warning letter. Few analysts have lowered target price with a cautious outlook. Phillip Capital remains positive and advises to buy on dips stating that the issue may have more sentimental impact. It also adds that content of the warning letter will be key to future action in Sun Pharma, else it does not expect any major sales or margin implication.
The brokerage is pinning hopes on its anti-cancer drug Gleevec generic. It feels that timely Gleevec launch could surprise positively and except Gleevec there are no key injectable in near-term pipeline. "It has enough time to go for site transfer for other drugs," Phillip Cap adds.
Sun Pharma's subsidiary received final approval from the US Food and Drug Administration (USFDA) for abbreviated new drug application (ANDA) for generic version of Gleevec, imatinib mesylate tablets 100mg and 400mg. CLSA says any weakness in Sun Pharma should be used as a buying opportunity but slashed target price per share. It feels that warning letter has a low probability of an import alert and expects earnings growth recovery from Q3FY16.
Retaining a buy rating, JM Financial sees the warning letter limited downside risk to its FY17 estimates. It has set a 14-15 percent growth estimate including Gleevec generic exclusivity. It also adds that reliance on Halol is limited to FY18 injectible filings.
Though Citi feels that the stock likely to remain weak until warning letter is public it does not see a big hit unless this escalates into an import alert. Import Alert may hit FY18 earnings per share (EPS) and target price by 15-16 percent and Rs 170 per share respectively. The brokerage has a buy rating with a target price of Rs 1020 per share.
However, Morgan Stanley is negative on the stock. It has downgraded Sun Pharma to equalweight and cut price target to Rs 762 from Rs 981 per share. It believes the stock may trade down and remain lacklustre for 6-9 months. "Upcoming Gleevec launch in February 2016 could put a floor under the stock price," it adds.HSBC has downgraded it to hold with a reduced target of Rs 735 versus Rs 932 earlier. It says Halol warning letter could extend timeline for recovery in US biz and with two large companies Sun Pharma & Dr Reddy's under FDA warning there is potential for further sector de-rating.
Meanwhile, Nomura is neutral on the stock with a target price of Rs 817 per share but it does see the warning letter leading to an import alert. "Import alert will cut EPS estimats by Rs 3 & Rs 4.5 per share. Warning Letter creates uncertainty on contribution from new approvals other than Gleevec generic," it adds.
Credit Suisse is also neutral on the stock with no change in estimates. It expects consensus to cut FY17 EPS by 10 percent and says that majority of investors were not factoring in a warning letter. Hence it sees consensus to cut FY17 EPS by 10 percent. At 09:27 hrs Sun Pharmaceutical Industries was quoting at Rs 739.05, down Rs 51.40, or 6.50 percent on the BSE.
Posted by Nasrin SultanaFollow @NasrinzStory
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