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Last Updated : Dec 02, 2018 01:27 PM IST | Source: Moneycontrol.com

Why Sun Pharma finds itself in an unusual situation

Shares of India's largest drug maker dropped around 6.46 percent in the last five trading days.

Viswanath Pilla @viswanath_pilla
 
 
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Last week, Sun Pharmaceutical Industries was among the worst performing stocks. Shares of India's largest drug maker dropped around 6.46 percent in the last five trading days. The stock recovered on November 30 from the lows of almost 10 percent at one time.

What led to the fall?

The week gone by started with Sun Pharma announcing it had entered into settlements with certain plaintiffs in the Modafinil antitrust litigation pending in the United States District Court for the Eastern District of Pennsylvania. The company didn’t reveal terms of the settlement.

In Q2 FY19, the company had reported a surprise net loss of Rs 219 crore due to a one-time loss of Rs 1,214.38 crore with respect to the Modafinil antitrust litigation. In August last year, it paid Rs 950 crore in settlements relating to Modafinil, which is used to treat excessive sleep disorders.

It is still not clear whether this will be the last ever settlement.

But the real issue is a note circulated by Australian brokerage house Macquarie, which raised several questions about corporate governance practices by the company. The note points to alleged connections with tainted entities like Ketan Parekh and Dharmesh Doshi, and the conflict of interest with regards to Sudhir Valia, a whole-time director of Sun Pharma and also the brother-in-law of promoter Dilip Shanghvi.

The note talks about real estate guarantees given to Suraksha Realty, apart from seeking clarification as to why a little known London-based firm Jermyn Capital was selected to manage Sun Pharma's $275 million foreign convertible bond issue back in 2004-07. Jermyn's Indian arm allegedly has links with Parekh and Doshi, two traders who have come under scrutiny for the market crash of 2002.

Responding to the note, Sun Pharma said the information quoted in the note is available in public domain and is 10-15 years old. The management said it is compliant with corporate governance laws of the country.

That didn't end Sun Pharma's headache.

Moneylife on November 30 reported that a whistle-blower had complained to market regulator SEBI alleging numerous irregularities against Sun Pharma, its main promoter Dilip Shanghvi and Sudhir Valia. Most of them were repetition of the points mentioned in the Macquarie note. In addition, the whistle-blower alleged that during the Ranbaxy acquisition, the promoters may have gained as much as Rs 8,000 crore through insider trading.

Sun Pharma, along with its Managing Director Dilip Shanghvi, and nine others had settled the insider trading probe, paying Rs 18 lakh against the settlement charges in 2017.

A PTI report, quoting sources, said SEBI plans to reopen the investigation into the insider trading case against the company and its promoters that was settled through the consent mechanism.
First Published on Dec 2, 2018 01:27 pm
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