Sun Pharma up 5%; BoAML upgrades to buy, weak rupee to aid

BoAML is betting big on Indian pharma companies as weak rupee is positive for the sector. It says Cadila, Aurobindo and Lupin are the biggest beneficiaries of a weak rupee while Sun Pharma would see a moderate impact as it has global operations.

August 19, 2015 / 14:07 IST

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Shares of Sun Pharma rose 5 percent intraday on Wednesday. Bank of America Merrill Lynch has upgraded the stock to buy from neutral with a target price of Rs 1070, implying a 20 percent upside.

The brokerage has also raised FY17/18 earnings per share (EPS) by 10 percent driven by potential synergy benefits of USD 400 million from Ranbaxy integration in FY18, recent price hikes in Taro and sequential improvement in ex-Taro US business including supply from Halol unit.

Meanwhile, BoAML is betting big on Indian pharma companies as weak rupee is positive for the sector. It says Cadila, Aurobindo and Lupin are the biggest beneficiaries of a weak rupee while Sun Pharma would see a moderate impact as it has global operations.

However, the brokerage adds that there may be headwinds to earnings growth from emerging markets exposure as 15-20 percent of Indian firms’ revenues come from these markets. The sharp depreciation in various EM currencies and relative strength in rupee has led to 11-42 percent appreciation in the INR vs otherEM currencies in the last 12 months. “Firms exposed to Russia/CIS, Venezuela, Brazil and South African markets are more vulnerable to this. Dr Reddy’s is likely to be impacted the most, followed by Cipla. Lupin is exposed to currency volatility in the yen as 12 percent of its revenues come from Japan.,” it says in a note. Sun Pharma derives 14 percent of its revenues from EMs.