Sun Pharma's Dilip Shanghvi loses over 60% wealth in four years

Pharma company's valuations have been hit by several issues resulting in the promoter losing nearly Rs 90,000 cr

Dilip Shanghvi and family, the promoters of Sun Pharmaceutical Industries, have seen their fortunes go through sharp ups and downs over the past few years. Around March 2015, Shanghvi became the richest Indian for a brief period, surpassing Reliance Industries’ Mukesh Ambani. Since then, a range of issues has come to weigh down on Sun Pharma’s market cap, hurting Shanghvi’s wealth.  

Sun Pharma promoters’ wealth in March quarter of 2015 stood at Rs 1.4 trillion. At the end of Friday’s closing, the promoters’ wealth was down to Rs 53,762 crore. Over 60 per cent of the wealth got wiped out in four years.

Some of Sun Pharma’s troubles began after the company completed its $4-billion merger with Ranbaxy in 2015. Investor sentiments were somewhat dampened due to integration related costs. To compound matters, US Food and Drug Administration (USFDA) issued a warning letter to the Sun Pharma’s Halol plant at the end of the year. The Halol plant accounted for 15 per cent of Sun Pharma’s sales in the US, a major market for Indian pharma firms.

In 2016, the Indian pharma industry started facing issues of pricing pressure in the US generics market. For Sun Pharma, the full potential of the integration benefits from the Ranbaxy merger was not yet complete according to the management’s own estimates. 

The pricing pressure in US markets started taking a toll on the financial performance of Sun Pharma. The company’s FY18 revenues declined by 14 per cent to Rs 26,100 crore. The revenues in US fell 34 per cent to $1.36 billion. The company’s subsidiary, Taro, had seen a 25 per cent decline in revenues. The decline was driven by intense competition among manufacturers, new entrants, buying consortium pressures and a higher approval rate of abbreviated new drug application (ANDA) from the USFDA.

Analysts maintained a cautious outlook on the stock. Phillip Capital, in a note commenting on the company’s performance, said: “Sun Pharma’s FY18 performance as well as its growth guidance was just in-line with expectations. We remain concerned about the continued margin underperformance by Taro, enhanced spends on specialty business and Sun Pharma’s larger dependency on US operation, which faces massive competitive pressure.”

The year 2018 has added to the troubles of the pharma major. The allegation of whistle-blower complaint against Sun Pharma has further dented the company’s valuations. The stock has corrected 25 per cent since the news of a whistle-blower complaint to the Securities and Exchange Board of India (Sebi) surfaced in November.

According to reports, the whistle-blower complaint has alleged corporate governance lapses. The allegations have led to mixed reaction on the Street.

While some fund managers and investors say these reports have taken the sheen off the company, others feel that the veracity of these allegations is still not clear.